Profile
Structure
Orient
Rental Modaraba ('the Modaraba') is a Non-Banking Financial
Institution formed under the Modaraba Companies and Modaraba (Floatation
and Control) Ordinance, 1980. The Modaraba was formally listed on
17-Nov-17 on the Pakistan Stock Exchange (PSX).
Background
The Modaraba is associated with Orient Energy Systems (Pvt.) Ltd. ('Orient Energy') that provides engineering, power generation, and industrial solutions.
The Modaraba is registered under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980. The Modaraba structurally operates through Eman
Management Company (Pvt.) Ltd.('the Management Company') and was formed by spinning off two of the core divisions, generator rental and operation & maintenance
of Orient Energy.
Operations
The Modaraba commenced operations in Nov-17 as a multi-purpose and perpetual entity. The Modaraba provides generator/ equipment rental solutions, operations
and maintenance services. The renting of equipment is on Ijarah mode and the equipment includes fleet of Power Generation Equipment, Material Handling Equipment
and Constructions Machinery. In addition, the Modaraba is also engaged in providing Operation and Maintenance services to various customers.
Ownership
Ownership Structure
The Modaraba is (~25%) owned by its Directors, followed by the associated companies (~16.6%). Financial institutions hold ~8.9% stake, while,
general public holds ~ 49.5% stake in the Modaraba.
Stability
The ownership of the Modaraba seems stable
as the key sponsor, Orient Group, holds a diverse portfolio primarily
focused and distributing internationally
recognized power generation and industrial solution and services. The Group has
been a significant player in the country's business landscape for over six
decades.
Business Acumen
Orient Energy, a key subsidiary of the Orient Group, focuses on engineering solutions for the power and energy sectors. Orient Energy has a notable history of providing power generation equipment and related services in Pakistan.
Financial Strength
Orient Energy holds a sound financial
footing to financially support the Modaraba, if needs be.
Governance
Board Structure
The overall control lies with the six-member
Board of Directors (BoD), comprising two Independent Directors, three Non
Executive, and one Executive Director. The BoD holds substantial independence
and female presence that supports the policy formation and decision-making process.
Members’ Profile
The
BoD is Chaired by Mr. Ch. Jawaid Iqbal. He holds more than four decades of
experience in the engineering and power sector. Mr. Jawaid has been associated
with the Modaraba since its inception. Ms. Saba Ahmed Agrawalla, an Independent
Director, brings over 18 years of extensive experience in Pakistan's leasing
industry. Additionally, all other members of the BoD possess diverse
professional expertise, which supports the discussion process.
Board Effectiveness
During the year, the BoD met on quarterly
basis to discuss pertinent agenda. Adequate information pack was circulated
before each BoD meeting. To ensure effective and efficient operations, the
BoD is supported by three key committees: Audit, Human Resources and
Remuneration, and Risk Management. Audit and Human Resource committees are
chaired by Independent Directors, and
the Risk Management Committee is chaired by Non Executive Director, as per the
norm of the Code of Corporate Governance. All meetings have adequate presence
of the Directors with adequately documentation of minutes.
Financial Transparency
The Modaraba's external auditors, M/S. Yousuf Adil Chartered Accountants, has issued an unqualified report pertaining to the financial
statements as of FY24. The firm is QCR rated and is on the SBP's panel of auditors in the category "A".
Management
Organizational Structure
The Modaraba is managed through HR, IT,
Finance, Administration, Internal Audit, Procurement, Operations &
Maintenance, Logistics, Power Systems, and Sales functions. Each function is
managed by its respective Head, reporting directly to the CEO, who then reports
to the BoD. However, the Head of Internal Audit and HR reports administratively
to the CEO and functionally to the respective BoD committee.
Management Team
The Modaraba is led by Mr. Teizoon Kisat as
the CEO. He brings in over four decades of experience from the Modaraba
industry and has been associated with the Modaraba since Sept-20. Ms. Effat
Assad has been serving as the CFO since July 2021 and brings over three decades
of experience. The Modaraba is supported by a highly experienced management
team, which holds a long-standing association with the Company.
Effectiveness
The Modaraba's operations are overseen by individual functional departments, each reporting directly to the CEO. The establishment of management committees has resulted in enhanced monitoring and ensures effective execution of operations.
MIS
The Modaraba has an in-house ERP-based
management information system, which has been implemented for efficient and
timely reporting. The system provides optimal solutions for efficient
monitoring of customer proposals, approval processes, and execution of the facility
as well.
Risk Management framework
The Modaraba prudently manages and monitors risk exposure by implementing activities within the established limits set by the
Modaraba Management Company.
Business Risk
Industry Dynamics
Non-Bank Financial Companies (NBFCs) have emerged as a vital alternative to the conventional banking system, catering to key sectors such as infrastructure and small-to-medium enterprises (SMEs). Despite their role in improving financial inclusion, NBFCs' outreach remains limited. The sector has witnessed robust growth, with total assets increasing by ~34.5% YoY, from ~PKR 3,447bln in 6MFY24 to ~PKR 6,204bln in 6MFY25. However, challenges persist. NBFCs primarily raise funds by mobilizing deposits, which makes them susceptible to interest rate fluctuations and asset-liability mismatches, complicating the pricing and tenor of term loans. Despite challenges, the sector has ample room for growth, and its outlook remains stable.
Relative Position
The Modaraba holds a market share of ~4.66% based on the total assets in the industry, and ~8.19% on the basis of the total equity.
Revenues
The Modaraba generates revenue from: Ijarah
Rentals and Operation & Maintenance. During 6MFY25, the topline of the
Modaraba witnessed an improvement of ~23%, clocking in at ~PKR 1,226mln
(6MFY24: ~PKR 994mln). This improvement in revenue was driven by both segments,
with Operation & Maintenance improving by (~28%) and Ijarah Rentals by
(~20%) during the 6MFY25 period. For 9MFY25, the topline improved by ~20%
to ~PKR1,838mln (9MFY24: ~PKR1,536mln). Going forward, revenue diversification
is anticipated, which may lead to an improved topline.
Performance
During 6MFY25, gross profit stood at ~PKR 306mln (6MFY26: ~PKR 263mln) witnessing an increase of ~16% owing to higher sales reported during the period. The gross profit further increased to ~PKR455mln in 9MFY25. The finance cost remained stable during the period (6MFY25: ~PKR 66mln, 6MFY24 ~PKR 66mln) reaching ~PKR91mln in 9MFY25. Profit after tax showed an increase and stood at ~PKR 102mln in 6MFY25 (6MFY24: ~PKR 92mln). The Profit After Tax of the Company reached ~PKR 154mln in 9MFY25. Looking ahead, decrease in policy rates will reduce financial obligations positively impacting net performance of the Modaraba.
Sustainability
The Modaraba has recently amended the business objectives clause of its prospectus and aims to implement its strategy to enhance business volumes by
exploring new business avenues such as solar panel maintenance and battery energy storage systems thereby strengthening its bottom line. Additionally, it focuses on advancing its growth strategy through
the diversification of revenue streams and expanding its operations in the diminishing musharika.
Financial Risk
Credit Risk
The
Modaraba is carrying risks in terms of
default in rental payments by the customer and other risks such as
non-possession of the owned asset, misuse by the customer, accidents, theft,
and breakdown. The Modaraba manages its credit risk through a comprehensive
credit policy and deployment of assets at different industrial sector
throughout the Country.
Market Risk
The Modaraba focuses primarily on core business activities and has no exposure to equity/debt investment. The Modaraba primarily invests in assets used
for the Ijarah business. Consequently, the Modaraba’s exposure to market risk is negligible.
Liquidity and Funding
The liquidity position of the Modaraba
weakened, evident from the Liquid Assets / Total Funding ratio (6MFY25: ~17.3%;
6MFY24: ~45.8%), falling to 16.6% in 9MFY25. The Modaraba obtains primary
funding from banks and financial institutions through diminishing musharika,
and the borrowing-to-funding ratio stood at (6MFY25: ~88%; 6MFY24: ~82%). The
borrowing-to-funding ratio remained stable at ~88% in 9MFY25.
Capitalization
As of 6MFY25, the capital adequacy ratio
(CAR) stood at 15% portraying Modaraba's strong position, should adverse
circumstances arise. The capital structure of the Modaraba shows an inclination
towards leveraging, as evidenced by the stable equity-to-total-asset ratio of
~55% as of 6MFY25 (6MFY24: ~56%). The equity-to-total asset ratio improved
further, reaching 58% by 9MFY25.
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