Investment Bank/Investment Co: ESCORTS INVESTMENT BANK LIMITED - Year Ended 30-6-2003 & Half Year Ended 31-12-2003

During the financial year ended 30th June 2003, the bank's total income and net profit made impressive growth over the preceding year's as can be observed from the "Performance Statistics" appended with this review.
The Half Yearly Report for the half year ended 31 December 2003 is also in hand. The bank's total income during the half year, declined to Rs 123.16 million from Rs 128.49 million posted in the same period last year. The decline is 4.15%.
The decline is mainly due to the decrease in earnings from profit on placements, profit on bank deposits and profit on sale of investments.
The decline is apparently, because of lower mark up and in interest on deposit and placement and lower spread in the sale and purchase of marketable security.
The directors have vigorously implemented the Business Plan, Escorts Beyond 2001 launched in January 2002 after S.W.O.T.
Analysis of the Bank, assessment of the Macro Economic and Financial Market Trend and "An Eye on the Future."
This is almost business process reengineering to ensure enrichment to all stakeholders. During the half year its net profit significantly improved.
Escorts Investment Bank Limited is a public limited company, and its shares are quoted on the Karachi and Lahore Stock Exchanges.
The company was incorporated in Pakistan on May 15, 1995 and started commercial operation on October 16, 1996.
The registered office of the company is situated at Escorts House, 26 Davis Road Lahore.
The company is a member of Karachi Stock Exchange (Guarantee) Limited and Lahore Stock Exchange (Guarantee) Limited.
Escorts Investment Bank Limited is licensed to carry out all investment finance activities as a Non-Banking Company under section 282C of the Companies Ordinance, 1984 and Non Banking Finance Companies (Establishment and Regulation) Rules 2003 (previously it was licensed to carry out all investment finance activities described under SRO 585 (1) 87 dated July 13, 1987 issued by the Ministry of Finance).
To meet the minimum capital requirements under rule 7(3) of the Non Banking Finance Companies (Establishment and Regulation) Rules 2003, the company's Board of Directors approved 50% increase in share capital through right issue at par.
According to the pattern of shareholdings dated 30th June 2003, the company's directors, their spouses etc, held company's stock to the extent of 32.08%.
Its associated company, Essem Power (Pvt) Ltd held 39.01% of the company's stock. In this way the sponsors/directors have 71.09% stake in the equity of Escorts Bank.
At present the Escort Bank's share is trading at Rs 13.25 per share carrying 32.5% premium over the par value of Rs 10.
During the last one year the share's price sharply shot up from below par value at Rs 8.25 per share to Rs 16.40 per share which is almost double of the minimum price of one year.
During the year ended 30th June 2003, the company's total income's growth was quite impressive as it increased to Rs 233.92 million by 58.28% from Rs 147.79 million in the preceding year.
The largest component of total income was "return on investment" at Rs 70.91 million (2001-02: Rs 42.38 million) which increased by 67.3% over the preceding year's and this alone was 30.3% total income.
The other profit centre was also related to investment portfolio profit on sale of investments amounted to Rs 59.20 million and this amount is nearly 3 times of Rs 19.90 million posted in the preceding year. Both these profit centres work out to 55.6% total income.
The Half Yearly Account dated 31 December 2003 is also in hand. During the first half year of the financial year 2003-04, the company's return on investments at Rs 50.34 million exhibited increase 51.72% over the same period last year (SPLY) 33.18 million.
Profit on sale of investments amounted to Rs 20.64 million but declined by 58% from SPLY Rs 49.05 million.
In this case sustainability of growth could not be maintained although profitability related to investment portfolios remained the major source of revenue.
This investment bank's financing function in the shape of Morabaha financing posted profit at Rs 41.38 million during the year 2002-03 which increase by 55.96% over preceding year's Rs 26.53 million. It constituted 17.7% of total income.

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Performance Statistics                (Million Rupees)

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Year Ended                   June 30 2003         2002

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Share Capital-Paid-up:             200.00       200.00

Reserves:                           41.20        13.63

Shareholders Equity:               241.20       213.63

Surplus on Reval. of Securities:    92.73        18.86

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Liabilities

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Borrowings From Financial

 Institutions:                     777.90       310.00

Certificates of Investments:       692.67       731.58

Subordinated Loans:                 84.03        84.03

Liabilities Against Assets

 Subject to Finance Leases:          3.24         5.12

Creditors, Accrued & Other

 Liabilities:                       18.83        15.07

Provision for Taxation:             36.26        21.76

Proposed Dividend:                  30.04        12.05

Deferred Tax Liability:             49.93            -

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Assets

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Cash & Bank Balances:               68.45       143.30

Placements:                        323.09       337.22

Investments:                     1,104.77       601.44

Morabaha Financing:                375.65       207.01

Advances, Deposits, Prepayments

 & Other Receivable:               134.49       109.73

Membership Card:                     7.17            -

Operating Fixed Assets:             13.21        13.40

Total Assets:                    2,026.83     1,412.10

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Income, Profit & Pay Out

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Profit From Morabaha Financing:     41.38        26.53

Profit on Placements:               40.34        43.82

Return on Investments:              70.91        42.38

Gain on Repurchase Transactions:    12.69         5.22

Profit on Sale of Investments:      59.20        19.90

Profit on Bank Deposits:             6.98         8.72

Fees & Commission:                   2.08         1.15

Other Income:                        0.34         0.07

Gross Income:                      233.92       147.79

Expenditure (Cost/Return) on

 Deposits, Borrowings etc:        (115.31)     (88.00)

Administrative & Other

 Operating (Expenses):             (44.54)     (31.73)

Financial (Charges):                (0.70)      (0.71)

(Provision) Against Non-Operating

 Morabaha Finances:                 (1.31)      (8.07)

Total (Expenditure & Provisions): (161.86)    (128.51)

Profit Before Taxation:             72.06        19.28

Profit After Taxation:              57.56        12.28

(Dividend) Cash 15% (2000 6%):     (30.00)     (12.00)

Earning Per Share (Rs):              2.88         0.61

Share Price (Rs) Dated 29-03-04:    13.25            -

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Financial Ratios

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Price/Earning Ratio:                 4.60            -

Book Value Per Share:               12.06        10.68

Price/Book Value Ratio:              1.10            -

Net Profit Margin (%):              24.61         8.31

R.O.E.:                             23.86         5.74

R.O.A. (%):                          2.83         0.87

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