Entertainment Pakistan Limited

CREDIT RATING REPORT | May-25

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Rating History
Dissemination Date Long-Term Rating Short-Term Rating Outlook Action Rating Watch
16-May-25 BB A3 Stable Maintain -
16-May-24 BB A3 Stable Maintain -
16-May-23 BB A3 Stable Maintain -
23-May-22 BB A3 Stable Initial -
About the Entity

Entertainment Pakistan Limited is a public unlisted company incorporated in 2011, with shares almost equally divided among group of highly qualified and experienced individuals. The BoD consists of sponsors as well as 2 independent directors.

Rating Rationale

Entertainment Pakistan Limited (EPL or the Company) enjoys two streams of income – Rental and through sale of developed properties. The company earns sublease income by subletting buildings that have been taken on Lease from DHA under first pivot, and develops its own real estate projects under second pivot. In the developmental model, EPL transfers ownership as well as possession of apartments after installments are received completely. The company purchases land on a deferred payment model for its projects and starts construction before the transfer of land ownership which creates the risk of land ownership disputes. Company’s first real estate venture, “Dawood Homes”, located near Dream Gardens in Lahore, offering accommodations on 5 marla plots, has been successfully completed with the sale of 100% homes under the project. Whereas, Roshan homes project construction is put on hold due to pending receipt of 2nd tranche of investment from REALL Limited UK, primarily impacted by prevailing macroeconomic conditions and the downturn in the real estate sector. During 6MFY25, revenues were recorded at PKR ~35mln (FY24: PKR ~203mln). The current year's income reflects only the rental income since there is no development towards the second stream of income due to lack of fund. Matching with the development of Roshan Home, the Company deferred the payment of land to the society in consultation with the owner of the society. However, any prolonged delay may cause a risk. Resultantly, the Company experienced a slight decline in gross margins, representing the delta of the sublicense and license fee paid to DHA. Net margins were also squeezed due to trickle-down effect. EPL is not exposed to any significant financial risk as it does not have significant borrowings from banks. It instead borrows from sponsors and their close relatives. Completion risk and inflation risk of the company is low as units are constructed and handed over on a batch basis, which gives it flexibility over price setting. The company is committed to complete first building of Roshan Homes soon and has 1 more project of 'Urban homes' in Urban City which is in the pipeline on a similar model in already developed societies. The project aims to construct 50 residential units, each measuring 5 marla. The entire development will be financed through internal funds provided by the Company.

Key Rating Drivers

Ownership of land and adequacy of financial strength remain crucial for the company. Timely completion of the projects along with delivering promised quality to develop positive brand image and timely collection from customers against sale of apartments are important. Governance and corporate structure require improvement and so does financial discipline.

REPORT CONTENTS
  1. Rating Analysis
  2. Financial Summary
  3. Rating Scale
  4. Regulatory Disclosure

Entertainment Pakistan Limited

rating analysis

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Profile
Legal Structure

Entertainment Pakistan Limited is a public unlisted company and its registered office is located on H-160/2 Commercial Phase 1 DHA, Lahore Punjab. The principal activities of the Company is to take buildings on lease and sublease them as well as real estate development.


Background

The Company was incorporated on July 4, 2011 as a private limited company under Companies Act, 2017 and later on November 12, 2019, status of company was changed from private to public unlisted. The Company was primarily made to explore sustainable living options for the economically challenged class of the society.


Operations

The Company has primarily two streams of income–lease rental income and real estate development. In the first pivot, EPL gets access to properties requiring innovative solutions and restructures them. Company has currently 2 buildings on this model in Lahore, obtained on lease from DHA on an agreement of 30 years . The Company has further sublet these building to different companies and earns sublease income on the same. In the 2nd pivot, the company develops its own real estate projects. Dawood homes and Roshan homes are two such projects of the company.


Ownership
Ownership Structure

Shares of EPL are almost equally divided among 3 partners (in the name of their wives). Wives of Mr. Raza Khan and Mr. Ubaid Zafar holds 32.50% each whereas, wife of Mr. Imran Hafeez holds 30% stake and rest of the 5% is held by Mr. Imran Hafeez.


Stability

The ownership structure of the Company is seen as weak as there is no comprehensive partnership agreement in place to address issues of succession planning


Business Acumen

Business Acumen of sponsors seems adequate. Mr. Raza Khan, COO of Zaitoon Group, has over 20 years’ experience as property developer and consultant with different companies such as Pace Pakistan Ltd, Pace Barka Properties Ltd., Taavun Pvt. Ltd etc. while Mr. Imran Hafeez, Group Finance Head at PACE Pakistan, also has extensive experience of fund raising, feasibility analysis, pricing architecture, make vs. buy, capital investments, budgeting and cost management, project valuation and prioritization, etc.


Financial Strength

There is a room for improvement in adequacy of financial strength of the Company as it is not backed by any significant financial group. The Company has 2 other entities in the group as well.


Governance
Board Structure

Currently, the Company has six-member board including two independent directors. Mr. Raza Ahmad Khan Chairs the Board


Members’ Profile

Majority of board members are from corporate sector having diversified range of experience and expertise


Board Effectiveness

Board is considered to be effective as it consists of qualified and experienced professionals from the fields of Engineering, Finance, Sales & Marketing. There are two board committees, Audit Committee and Human Resource Committee. Minutes of the meetings are also maintained well.


Financial Transparency

M/s. Nasir Javaid Maqsood Imran are the external auditor of the company. The auditors are QCR rated and classified in category “B” of SBP Panel of Auditors. They have expressed unqualified opinion for the year ended Jun 30, 2024. The company gets external audit done twice every year to ensure transparency.


Management
Organizational Structure

Company has an adequate organizational structure. Currently, the organizational structure is divided into four main functions namely; 1) Operations 2) IT 3) Finance & Accounts 4) HR.


Management Team

Mr. Raza Khan spearheads the management operations. He is a mechanical engineer from GIK and has done his MS in real estate development and management from Heriot-Watt University. He is supported by an adequately enabled team. He looks into the operations, while finance side is being managed by Mr. Imran Hafeez.


Effectiveness

Weekly construction meetings are held for the review of policies and progress of ongoing projects and are attended by directors as well as construction and sales teams. Directors visit office of EPL every day in the evening for a few hours. Management on ground is being managed by CFO, Mr. Asad Bajwa and Company Secretary, Mr. Yahya Khurram. Absence of executive directors on the premises full time raises questions regarding effectiveness of management.


MIS

Manual reports generated on MS office are currently used by management for its decision making. Working on new ERP (Axiom) is under process.


Control Environment

The company currently has no certification on health, safety and quality control as it is not a service provider, however, as per management, its contractor, Global Construction Company, has the necessary certification. The company also has an Internal Audit Function.


Business Risk
Industry Dynamics

In recent past, fluctuations have been witnessed in investment in real estate sector attributable to change in fiscal policies which resulted in peaked interest rate environment. Revised policy rates and inflation impacted adversely on construction sector resulting in increasing the input costs. Thus, slowing down the pace of Real Estate


Relative Position

Since most of the names in real estate sector are catering to the demand of high-end customers/ elite class accommodation and commercial real estate, there are very few companies that are working to provide sustainable living solutions for less economically fortunate class of the society. Resultantly company has very few competitors such as ICON homes.


Revenues

During 6MFY25, revenues were recorded at PKR ~35mln (FY24: PKR ~203mln). Moreover, in 6MFY25 Company has recorded other income of PKR ~1mln (FY24: PKR~3mln). The Company made almost no new sales of apartments during the year due to lower investment in the real estate sector, as well as the due to previous inflation the management was not able to fix the price. However, now it has devised a solution and is in final stages of finalizing an agreement with its legal counsel according to which inflation levels of more than 5% will be directly passed on to the customer and data published by Pakistan Engineering council will be used to assess the inflation levels.


Margins

Gross Profit Margin of EPL slightly increased and stood at 38% during 6MFY25 (FY24: 36.5%), while Operating Profit Margin decreased to 18.5% (FY24: 25.8%) due to the efficient control of operating expenses which remained low as of the previous year and stood at PKR 7mln. Net profit margin declined to 13.3% in 6MFY25 (FY24: 18%) due to a decrease in other income.


Sustainability

Apart from Roshan Homes, the company has 2 more projects in the pipeline. 1) Rehan Gardens Phase II Project near Central Park Ferozepur Road in which it plans to make 3 to 5 marla houses on 50 plots to be purchased on deferred payment terms. 2) Urban homes, which aims to construct 50 residential units, each measuring 5 marla. The entire development will be financed through internal funds provided by the company.


Financial Risk
Working capital

EPL’s gross working capital days rose sharply to 2,308 days as of 6MFY25 (FY24: 722 days), primarily due to an increase in trade receivable days, stemming from outstanding payments on apartment sales. In contrast, inventory days remained relatively low at 950 days, down from the previous year. Trade payable days increased significantly to 1,611 days (FY24: 515 days), resulting in net working capital days of 698 days in 6MFY25 (FY24: 207 days). EPL maintains a cushion through adequate borrowing capacity, with short-term trade leverage at 32.9% and total leverage at 33.8%.


Coverages

During 6MFY25, on the back of lower PBT, EPL's FCFO stood at PKR 7mln (FY24: 49mln). Whereas, finance cost decreased slightly to PKR 2mln (FY24: 4mln). Resultantly, Interest coverage ratio deteriorated to 2.7x (FY24: 12.2x).


Capitalization

Leveraging (debt to debt plus equity) remains moderate to 21.8% at 6MFY25 (FY24: 28.8%) and is represented by its first tranche of investment from REALL Limited UK in December 2021, amounting to PKR 27.5 million which is a soft debt at 6% and no exchange risk. The company has no funded/nonfunded facility from bank other than finance lease liabilities of PKR 1 billion for vehicles purchased. The company has an equity base of PKR 123 million and short-term borrowings in the form of loans availed from individuals, amounting to PKR 18.7 million at an interest rate of up to 24% per annum.
 
 

May-25

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Entertainment Pakistan Limited

financial summary

(PKR mln)

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Dec-24
6M		 Jun-24
12M		 Jun-23
12M		 Jun-22
12M
A. BALANCE SHEET
1. Non-Current Assets 21 16 17 23
2. Investments 0 0 0 0
3. Related Party Exposure 0 0 0 0
4. Current Assets 455 501 383 365
a. Inventories 183 183 201 191
b. Trade Receivables 247 276 144 125
5. Total Assets 476 517 400 388
6. Current Liabilities 301 334 257 216
a. Trade Payables 300 320 254 214
7. Borrowings 29 29 30 33
8. Related Party Exposure 6 19 18 51
9. Non-Current Liabilities 17 16 12 14
10. Net Assets 123 118 82 73
11. Shareholders' Equity 123 118 82 73
B. INCOME STATEMENT
1. Sales 35 203 97 92
a. Cost of Good Sold (22) (129) (65) (61)
2. Gross Profit 13 74 32 31
a. Operating Expenses (7) (22) (20) (21)
3. Operating Profit 6 52 12 9
a. Non Operating Income or (Expense) 1 3 7 2
4. Profit or (Loss) before Interest and Tax 7 55 19 12
a. Total Finance Cost (2) (4) (7) (6)
b. Taxation (1) (15) (4) (2)
6. Net Income Or (Loss) 5 37 9 4
C. CASH FLOW STATEMENT
a. Free Cash Flows from Operations (FCFO) 4 49 15 10
b. Net Cash from Operating Activities before Working Capital Changes 4 49 15 10
c. Changes in Working Capital 10 (48) 13 (44)
1. Net Cash provided by Operating Activities 15 1 27 (35)
2. Net Cash (Used in) or Available From Investing Activities (5) 3 (2) (4)
3. Net Cash (Used in) or Available From Financing Activities (13) (1) (36) 46
4. Net Cash generated or (Used) during the period (4) 3 (10) 8
D. RATIO ANALYSIS
1. Performance
a. Sales Growth (for the period) -65.4% 109.1% 5.7% -27.5%
b. Gross Profit Margin 38.4% 36.5% 33.3% 33.2%
c. Net Profit Margin 13.3% 18.0% 8.8% 4.2%
d. Cash Conversion Efficiency (FCFO adjusted for Working Capital/Sales) 41.8% 0.3% 28.2% -38.0%
e. Return on Equity [ Net Profit Margin * Asset Turnover * (Total Assets/Shareholders' Equity )] 7.7% 36.5% 11.1% 5.4%
2. Working Capital Management
a. Gross Working Capital (Average Days) 2308 722 1243 1115
b. Net Working Capital (Average Days) 698 207 364 309
c. Current Ratio (Current Assets / Current Liabilities) 1.5 1.5 1.5 1.7
3. Coverages
a. EBITDA / Finance Cost 4.6 13.5 2.1 1.8
b. FCFO / Finance Cost+CMLTB+Excess STB 2.5 10.5 1.8 1.4
c. Debt Payback (Total Borrowings+Excess STB) / (FCFO-Finance Cost) 6.5 1.1 6.5 22.1
4. Capital Structure
a. Total Borrowings / (Total Borrowings+Shareholders' Equity) 22.1% 28.8% 37.4% 53.6%
b. Interest or Markup Payable (Days) 0.0 0.0 0.0 0.0
c. Entity Average Borrowing Rate 7.6% 8.2% 10.1% 8.6%

May-25

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Entertainment Pakistan Limited

rating scale

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May-25

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Entertainment Pakistan Limited

regulatory disclosure

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  1. Rating Team Statements
    1. Rating is just an opinion about the creditworthiness of the entity and does not constitute a recommendation to buy, hold, or sell any security of the entity rated or to buy, hold, or sell the security rated, as the case may be. (Chapter III; 14-3-(x))
    2. Conflict of Interest
      1. The Rating Team or any of their family members have no interest in this rating (Chapter III; 12-2-(j))
      2. PACRA, the analysts involved in the rating process, and members of its rating committee and their family members do not have any conflict of interest relating to the rating done by them (Chapter III; 12-2-(e) & (k))
      3. The analyst is not a substantial shareholder of the customer being rated by PACRA [Annexure F; d-(ii)]
      4. Explanation: for the purpose of the above clause, the term "family members" shall include only those family members who are dependent on the analyst and members of the rating committee.
  2. Restrictions
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    2. PACRA does not disclose or discuss with outside parties or make improper use of the non-public information which has come to its knowledge during a business relationship with the customer. (Chapter III; 10-7-(d))
    3. PACRA does not make proposals or recommendations regarding the activities of rated entities that could impact a credit rating of the entity subject to rating. (Chapter III; 10-7-(k))
  3. Conduct of Business
    1. PACRA fulfills its obligations in a fair, efficient, transparent, and ethical manner and renders high standards of services in performing its functions and obligations. (Chapter III; 11-A-(a))
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    3. PACRA discloses that no shareholder directly or indirectly holding 10% or more of the share capital of PACRA also holds directly or indirectly 10% or more of the share capital of the entity which is subject to rating or the entity which issued the instrument subject to rating by PACRA. (Chapter III; 12-2-(f))
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    2. PACRA reviews all the outstanding ratings periodically on an annual basis. Provided that public dissemination of annual review and in an instance of change in rating will be made. (Chapter III; 17-(b))
    3. PACRA initiates an immediate review of the outstanding rating upon becoming aware of any information that may reasonably be expected to result in downgrading of the rating. (Chapter III; 17-(c))
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  6. Probability of Default
    1. PACRA’s Rating Scale reflects the expectation of credit risk. The highest rating has the lowest relative likelihood of default (i.e., probability). PACRA’s transition studies capture the historical performance behavior of a specific rating notch. Transition behavior of the assigned rating can be obtained from PACRA’s Transition Study available at our website. (www.pacra.com) However, the actual transition of rating may not follow the pattern observed in the past. (Chapter III; 14-3(f)(vii))
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May-25

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