Investment: JS GLOBAL CAPITAL LIMITED - Analysis of Financial Statements Financial Year 2004 - Financial Year 2008
JS Global Capital Limited (formerly JS Capital Markets Ltd), with long term rating of AA by PACRA, is a subsidiary of Jahangir Siddiqui & Company Limited. The company started operations in September 2003. Its principal activities are share brokerage, money market and foreign exchange brokerage, equity research, advisory and consultancy services.
It is listed on Karachi Stock Exchange and is one of the top three equity brokers in Pakistan. JSGCL provides financing and advisory services to its parent group, JS Group. In 2006, Global Investment House KSCC, a leading Kuwait-based regional investment bank in Middle East invested USD 37 million in JS Capital Markets through an acquisition of 42.8 percent stake.
As a result, the company was renamed as JS Global Capital Limited and its equity was raised to USD 47 million. JS Global Capital has a capital adequacy of USD 762 million, which is the highest in the country for a stock brokerage, business financing and advisory services company.
The company has recently finalised an agreement with Mubasher of Dubai to introduce the next generation of online trading system in Pakistan. The Mubasher system will offer a fast, secure and simple online service to investors due to its foreign design and operation under the FIX protocol. The inclusion of the Dubai and Abu Dhabi markets would make the JS Global platform the first multi-exchange online environment in Pakistan offering the largest range of market options to investors.
CAPITAL MARKET'S RECENT PERFORMANCEPakistan's equity markets showed robust performance as compared to other markets in the region. However, recently the local equity market posted negative returns for the year FY08. Despite economic crises being faced by the developed world, Pakistani equity market was expected to show better results. But because of several factors such as rise in oil and food prices, political upheavals in the country impacted negatively on the market economics. The situation further worsened due to economic downturn.
Increasing fiscal and current account deficit (already crossed billion dollars in July-September 08) is badly impacted the country's economic position as well as depreciation in the rupee value shaken the confidence of the investors, especially the foreign investors. Short-term measures like market caps and freezing the trading may prove beneficial in the short run but this will not help improve the situation in the longer run.
FINANCIAL PERFORMANCE (FY04-FY08)The overall profitability of JSGCL improved in FY07-08. PAT in FY08 recorded 55 percent growth and stood at Rs 624 million as compared to Rs 402.8 million in FY07. Total revenues stood at Rs 1,132 million, which is actually 54 percent growth as compared to Rs 734 million last year. Operating expense also showed somewhat similar growth of 49.9 percent in FY08 and stood at Rs 458.5 million as compared to last year (2007: Rs 305.7 million).
Operating expenses mainly increased due to expansion in branch network, development of IT infrastructure and increased human resource costs. Similarly, the financial charges recorded almost 400 percent growth. This increase was mainly because the company had privately placed TFC to publicly unlisted company amounting to Rs 936,751,824 at a mark-up rate of 9% per annum.
The payment of TFC was partly made on 30 April 2008 and remaining payment was made on 15 May 2008. Gain on sale of investment showed 63.68 percent growth mainly due to capital gains on the sale of shares. Significant growth in PAT resulted in higher ROA and ROA in 2008 as compared to 2007. In 2008, 50 percent bonus share was announced as a result its impact was witnessed on lower than expected ROA and ROE.
ROA and ROE declined in FY07 mainly because of 10,009,700 shares issued to Global Investment House in FY07, which increased the equity by almost 500 percent. This decreased the ROE from 50.8 percent in 2006 to 13 percent in 2007. Similarly, in FY07 ROA declined mainly due to 142 percent increase in total assets as compared to 52 percent increase in PAT. Also, both PAT/revenues and PBT/revenues showed marginal growth in FY08 and compared to FY07.
Both revenues and expenses showed significant growth in FY07 but the income to expense ratio of JSGCL decreased marginally in 2008 as compared to 2007. This is mainly due to greater increase in expenses compared to that in revenues showing a marginal decrease in company's ability to cover its expenses by given revenues.
The liquidity position of JSGCL has been improving for the last four years as depicted by the current ratio figures. Current ratio increased marginally from 2.30 in FY07 to 2.33 in FY08.
This is due to very small growth rates observed in current assets and current liabilities, which grew at 4.78 and 3.28 percent in FY08. Also higher current ratios of JSGCL are mainly due to higher marketable securities (current assets) as JSGCL is a security house. In the current assets, loans advance and other receivables showed 226.8 percent this year as compared to last year.
All the debt management ratios indicate JSGCL's decreased reliance on debt financing compared to equity financing. D/E ratio increased in 2005 from 2004 and but has been following a declining trend till 2008. D/E ratio of 2008 remained somewhat similar to previous year.
This is because of marginal growth witnessed in both total debt and total equity of the company. D/E declined marginally in 2006 and sharply in 2007. This is mainly due to 49.6 percent increase in equity as compared to 35 percent increase in debt in the FY07.
D/A also showed a trend somewhat similar to D/E. D/A declined marginally this year after a sharp decline in D/A in FY07. Total Debt in FY08 grew at 3.2 percent as compared to 4.8 percent growth in total assets. TIE ratio plummeted in 2005 due to very high increase in financial charges coupled with lower EBIT. The ratio, since then, has been improving mainly due to lower growth in financial charges as compared to significant growths in EBIT.
In 2007, the ratio recovered greatly as financial charges decreased by 7.3 percent to Rs 11.89 million (2006: Rs 12.82 million) and EBIT increased by 50.5 percent to Rs 478.5 million in 2007 to Rs 317.8 million in 2006. Lower financial charges are mainly due to lower mark-ups on running finance. This year, however, we see a trend similar to 2005.
JSGCL's financial charges increased by almost 4 times in 2008 as compared to 2007 mainly due to issuance of TFCs worth Rs 936,751,824. An analysis of JSGCL's stock data against KSE 100 index showed mixed trends.
Company's stock price showed favourable trends in the months of September and February 2008 and start of FY08 as compared to 100 index. Besides these months, stock price henceforth did not match KSE 100 index's performance. JSGCL's earnings per share have been declining in the period under study indicating company's increasing number of shares outstanding outweighing the effects of higher profitability.
EPS further declined to 17.48 in FY08 (FY07: 19.05) mainly due to 50 percent bonus shares given in FY08. Similarly, JSGCL's book value per share has been showing significant growth in the period under review. Breakup value declined from 130.13 in FY07 to 91.90 in FY08. This is mainly due to 50 percent growth in number of shares outstanding as compared to 5.93 percent growth in total equity.
FUTURE OUTLOOKIn contrast to FY07's performance, the KSE 100 Index has shown dull performance in the FY08. In FY07, it looked as if the capital from allover the world was gravitating towards Pakistan, despite the deteriorating law and order situation, investors were keen on Pakistan's equity market with unwavering confidence, even though the crude oil prices were setting new records daily in the international markets. In short, the bourses were not truly reflecting the true economic picture prevailing within the country.
Increasing fiscal and current account deficit is badly impacting the country's economic position. This combined with depreciation in rupee value hurt investors' confidence. As a result, we have been witnessing decreasing investment from foreign investors. In response, several short-term measures were put in place. Similarly, the trading has been stopped on the floor.
These short-term measures may be beneficial in the short-run. However, it should be realized that such measures are not effective in the long run and increase the regulatory risk faced by the investors. Financial crisis is freezing the global economies of the developed countries. This storm, however, has not affected KSE up-till now.
However, more sellers are being witnessed on lower limits recently and the floor freezing is not being welcomed by the foreign community. It is also expected that selling pressure will persist on the floor especially once this freeze is lifted. Overall, the profitability of the company is expected to show downward trend in the near future due to current volatility existing in the financial markets.
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JS GLOBAL CAPITALS - FINANCIALS
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Balance sheet 2004 2005 2006 2007 2008
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HARE CAPITAL AND RESERVES
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Issued, subscribed and paid up capital 60,000,000 100,000,000 138,000,000 238,097,000 357,145,500
Share Premium - 32,000,000 - 2,072,007,900 1,952,959,400
Unappropriated profit 40,006,665 127,306,180 385,514,334 788,332,175 995,796,550
Unrealised loss on re-measurement
of securities at fair value - (17,373,300) (3,474,660) - (23,686,148)
Total Shareholder's Equity 100,006,665 241,932,880 520,039,674 3,098,437,075 3,282,215,302
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NON CURRENT Liabilities
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Advance against issue of shares - - 300,499,400 - -
Deferred taxation 203,217 597,452 791,803 1,567,285 1,440,366
Total Current liabilities 203,217 597,452 301,291,203 1,567,285 1,440,366
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CURRENT LIABILITIES:
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Running finance under mark-up
agreements-secured - 256,408,309 176,890,535 246,473,078 -
Creditors, accrued expenses
and other liabilities 206,354,707 519,413,760 1,197,779,507 2,001,664,608 2,264,113,388
Interest and mark-up accrued - - - 540,717 15,067,150
Provision against taxation 25,773,350 44,108,943 42,755,104 69,667,638 115,138,087
Total Current liabilities 232,128,057 819,931,012 1,417,425,146 2,317,805,324 2,394,318,625
Total Liabilities 232,331,274 820,528,464 1,718,716,349 2,319,372,609 2,395,758,991
Total Liabilities and
Shareholder's Equity 332,337,939 1,062,461,344 2,238,756,023 5,417,809,684 5,677,974,293
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NON-CURRENT ASSETS
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Property, plant and equipment 2,883,847 20,158,989 26,153,242 68,076,487 72,321,711
Intangible assets 21,000,000 24,866,667 22,933,335 22,000,001 21,573,291
Long term loans, advances and deposits 1,407,934 5,879,057 1,925,305 2,685,116 4,527,628
Long term investment
- advance against equity - 3,071,667 - - -
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CURRENT ASSETS:
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Short term investments - 52,119,900 66,018,540 1,038,133,637 708,110,076
Trade debts - unsecured,
considered goods 41,433,918 477,033,287 1,087,641,912 1,914,577,787 1,982,717,833
Loans, advances, prepayments,
and other receivables 6,061,613 10,156,482 11,659,082 613,160,050 2,003,902,349
Advance tax 3,683,054 43,741,784 40,818,648 79,169,928 146,712,990
Receivable under reverse
repurchase/CFS transaction 209,634,271 423,610,751 664,420,075 1,573,890,024 530,106,289
Cash and bank balances 46,233,302 1,822,760 317,185,884 106,116,654 208,002,126
Total current assets 307,046,158 1,008,484,964 2,187,744,141 5,325,048,080 5,579,551,663
Total Assets 332,337,939 1,062,461,344 2,238,756,023 5,417,809,684 5,677,974,293
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PROFIT AND LOSS ACCOUNT 2004 2005 2006 2007 2008
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Operating revenue 136,927,399 206,322,207 424,300,760 491,477,344 886,845,595
Income from reverse
repurchase/CFS transactions 6,332,810 45,978,693 71,453,095 186,718,842 157,055,883
Capital gain on sale of investments - - - 56,380,753 92,281,828
loss on revaluation
of investments carried at fair value - - - (172,671) (3,673,229)
Administrative and
operating expenses (77,222,823) (122,584,522) (190,204,308) (305,771,927) (458,544,709)
other operating income 915,017 630,668 12,278,845 49,892,512 126,020,117
financial charges (704,378) (9,317,703) (12,827,662) (11,890,235) (59,871,615)
Profit before taxation 66,248,025 121,029,343 305,000,730 466,634,618 740,113,870
taxation - current (25,773,350) (18,335,593) (42,755,104) (69,667,638) (115,138,087)
-prior - - 2,156,879 6,626,343 (968,577)
-deferred (203,217) (394,235) (194,351) (775,482) 126,919
Profit after taxation 40,271,458 102,299,515 264,208,154 402,817,841 624,134,125
Basic/Diluted Earnings per Share 6.71 10.58 19.15 19.02 17.48
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FINANCIAL RATIOS 2004 2005 2006 2007 2008
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EARNING RATIOS
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ROA 12.12% 9.63% 11.80% 7.44% 10.99%
ROE 40.27% 42.28% 50.81% 13.00% 19.02%
PAT/Revenues 28.11% 40.55% 53.29% 54.85% 55.11%
PBT/Revenues 46.24% 47.97% 61.52% 63.54% 65.35%
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LIQUIDITY RATIOS
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Current Ratio 1.32 1.23 1.54 2.30 2.33
Revenue/Expenses 1.83 1.91 2.44 2.31 2.18
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DEBT MANAGEMENT RATIOS
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Debt to Equity 2.32 3.39 3.30 2.83 2.86
Debt to Assets 0.7 0.77 0.77 0.43 0.42
Interest coverage ratio 57.2 10.98 20.6 33.88 10.42
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MARKET RATIOS
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Earnings/Share 6.71 10.58 19.15 19.02 17.48
Book value/Share 16.67 24.19 37.68 130.13 91.9
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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