Modaraba: FIRST HABIB MODARABA - Analysis of Financial Statements December 2004 - December 2006
First Habib Modaraba is a perpetual, multi-purpose Modaraba floated and managed by Habib Modaraba Management (Private) Limited. It is listed on all the stock exchanges of Pakistan. The Modaraba is engaged in the business of Leasing, Musharika, Murabaha financing and other related business like Equity Investment and Certificate of Musharika.
However, the Company's principal activity is to maintain a portfolio of leased assets, which comprises plant, machinery and equipment, fixtures and fittings and vehicles. It subsequently leases the portfolio of fixed assets and derives revenue from lease rental activities.
First Habib Modaraba is making tremendous efforts in this context and a wide range of plant and machinery, office equipment, furniture fixture, computers and motor vehicles is made available to various customers though leasing arrangement, which helped them save on capital outlays, preserve existing lines of credit, avail tax benefits and concentrate on available financial resources fully on production of goods and services. Customers who have benefited from the First Habib Modaraba leasing operation include:
-- Manufacturing concerns
-- Banks and other service organizations
-- Trading concerns
With the fast growing acceptability of leasing business in recent years, the market potential and competition requires an innovative, but cautious approach to business, which will always conform to the requirements of Shariah. FHM intends to pursue a stable-growth strategy to maintain and improve market share.
The Management of FHM has always given emphasis on building up quality assets portfolio which is evident from the fact that until now it has no bad debts. Efforts have always been made to enlarge the area of business in a prudent manner and execute funding transaction judiciously on a selective basis with an in-depth assessment of client. The Management believes in a steady growth and not in a policy of aggressive investment in which funds invested may not be recovered in a timely manner. The financial facility is extended purely on economic considerations keeping in view the safety of Modaraba, funds, business morality and financial integrity of borrowers.
Financial Performance (FY'04 - FY'06):
FHM has achieved an excellent result for FY06 and all its business segments showed a sterling performance in a highly competitive market. A significant progress was made in terms of writing new leases. A disbursement of approximately Rs 1720 million was made. Rental collection also improved by 19% compared to same period last year (SPLY). The Modaraba registered a profit of Rs 141 million, which is the highest ever in the history of the Modaraba.
Both net and gross profit margins registered a positive trend on account of increasing profits. ROE, which declined sharply in 2005 due to higher equity base, also recovered slightly in 2006 due to high PAT. FHM has highest equity base in the entire Modaraba sector.
ROA on the other hand showed a slight decline in FY06 from the previous year due a modest increase in assets base compared to a robust increase in PAT. The income to expense ratio of FHM has remained almost stable hovering between 1.2 and 1.24, showing that FHM is able to cover its expenses by higher revenues.
The liquidity position of FHM has also improved considerably with current ratio rising to 0.74 in FY06, showing FHM's increased ability to meet its short-term liability via its current assets. However, it still needs to improve further in this regard and bring the ratio to 1.
All the debt management ratios indicate FHM's reduced reliance on debt financing compared to equity financing. D/A ratio has declined overall from 2004 but has increased slightly in 2006 due to increase in security deposits, Morabaha financing (long-term debts) and certificates of Musharika financing.
D/E ratio also follows a trend similar to D/A declining overall but rising slightly in 2006 due to above mentioned reasons. This is further confirmed by the long-term debt to equity ratio which has increased in 2006.
TIE ratio has plummeted in 2005 due to lower EBIT coupled with high financial charges in 2005. In 2006 the ratio remained flat due to almost equal increases in EBIT and finance costs. Hence one can say that FHM needs to work hard in improving its interest covering ability.
The (P/E) ratio shows how much investors are willing to pay per rupee of the reported profits, depends on the company's price per share and its the earnings per share (EPS).
The EPS has remained almost constant hovering between 1.35 and 1.4 and year-end market prices of FHM have been declining over the 3-year period as shown by the trend line. Hence, the P/E ratio followed an overall declining trend driven mainly by the effect of declining market price of shares. The P/E ratio of FHM is much higher than other companies in the Modaraba sector, reflecting investor's confidence in FHM.
FHM is currently trading on attractive valuations. Its book value per share shows a positive trend on account of expanding equity base which is the highest in the entire Modaraba sector. This is due to increase mainly in reserves and issued capital after 2004, compared to very modest changes in the number of shares. This reflects that now investors/shareholders are willing to pay more for a share of the company.
As evident from the consistent DPS trend, the company did not skip dividend during any of the years. The regular and attractive dividend distributions to its prime stakeholders - shareholders coupled with a decent BV/share, shows maximization of shareholder's wealth as a prime objective of FHM.
FUTURE PROSPECTS: If we look to future of country's economy there are many areas of concern such as political uncertainty, low investments in the industry due to high interest rates, higher inflationary spiral due to surge in international oil prices, fiscal deficit due to higher debt servicing and price increase of imported inputs. In order to mitigate these risks the government needs to monitor the situation carefully and take corrective and timely measures as there is no short cut available to revive the economy.
FHM looks into the future with confidence and expects enhancement of business activity particularly in industrial sector. The company is continuing its efforts to consolidate its position and tap opportunities for further business growth. Due to low capital investments in the industrial sector on account of rising interest rates and shrinkage of good quality corporate entities and intense competition in leasing sector posed new challenges for leasing business. However, First Habib Modaraba continues to lay focus on upcoming challenges for further improvements of business in a prudent manner.
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First Habib Modaraba Financials
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Balance sheet 2004 2005 2006
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ASSETS
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NON-CURRENT ASSETS
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Fixed assets - tangible
Assets leased out 1,723,615,641 2,047,013,872 2,744,844,126
Assets in own use 2,925,159 4,117,027 7,328,096
1,726,540,800 2,051,130,899 2,752,172,222
Intangible assets 89,890 196,884 213,181
Long-term advances and deposit 1,166,654 799,685 1,406,962
2,052,127,468 2,753,792,365
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CURRENT ASSETS
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Investments - available for sale 329,009,596 568,367,801 987,037,140
Short-term Murabaha finance - 69,678,393
Lease rentals receivable
- secured, considered good 1,342,220 1,293,772 1,429,265
Advances, deposits, prepayments 1,400,483 3,289,785 1,979,753
and other receivables
Cash and bank balances 72,268,402 31,968,744 73,492,296
404,020,701 604,920,102 1,133,616,847
TOTAL ASSETS 2,131,818,045 2,657,047,570 3,887,409,212
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EQUITY AND LIABILITIES CAPITAL AND RESERVES
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Certificate Capital:
Authorised capital 300,000,000 600,000,000 600,000,000
Issued, subscribed and 252,000,000 504,000,000 504,000,000
paid-up capital
R e s e r v e s 384,499,004 822,802,197 1,291,312,368
Certificate holders' equity 636,499,004 1,326,802,197 1,795,312,368
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NON-CURRENT LIABILITIES
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Long-term morabaha 149,045,834 171,618,615 360,293,146
finances - secured
Certificates of 88,185,000 67,295,000 14,370,000
musharaka - unsecured
Security deposits
against assets leased out 114,026,769 147,877,495 188,591,225
3,173,620 386,791,110 563,254,371
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CURRENT LIABILITIES
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Morabaha finances
- current portion 212,293,105 171,040,391 265,302,608
Certificates of musharaka
- current portion 795,616,049 520,952,497 991,629,383
Security deposits - current portion 35,195,843 39,373,252 40,544,153
Short-term musharaka
finances - secured - 153,000,000 150,000,000
Advance lease rentals received 13,771,524 13,028,473 19,241,025
Accrued and other liabilities 22,829,637 34,414,930 49,724,524
Taxation - net 1,671,050 1,565,703 1,482,815
Unclaimed profit distribution 9,110,610 10,079,017 10,917,965
1,140,887,818 943,454,263 1,528,842,473
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TOTAL LIABILITIES 1,495,319,041 1,330,245,373 2,092,096,844
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TOTAL EQUITY AND LIABILITIES 2,131,818,045 2,657,047,570 3,887,409,212
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INCOME STATEMENT 2004 2005 2006
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INCOME
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Lease rentals 828,884,214 1,008,815,269 1,200,665,344
Profit on murabaha finance 13,659,329 4,805,336 5,735,693
Gross Revenue 842,543,543 1,013,620,605 1,206,401,037
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EXPENSES
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Depreciation on fixed
assets leased out 680,350,419 812,766,804 945,712,484
Administrative expenses 21,449,658 27,299,304 24,923,306
total expenses 701,800,077 840,066,108 970,635,790
Operating Profit 763,346,195 173,554,497 235,765,247
Other income 13,659,329 19,220,893 34,379,722
EBIT 777,005,524 192,775,390 270,144,969
Financial Charges 61,546,118 79,692,211 113,391,403
715,459,406 113,083,179 156,753,566
Modaraba company's management fee -7,919,735 -11,308,318 -15,675,357
Profit for the year 71,277,613 101,774,861 141,078,209
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EARNINGS PER CERTIFICATE 1.35 1.42 1.4
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- Basic and diluted
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FINANCIAL RATIOS 2004 2005 2006
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PROFITABILITY RATIOS
Profit Margin 8.46% 10.04% 11.69%
Gross Profit Margin 9.40% 11.16% 12.99%
Return on Assets 3.34% 3.83% 3.63%
Return on Equity 11.20% 7.67% 7.86%
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LIQUIDITY RATIOS
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Current Ratio 0.35 0.64 0.74
Income/Expense Ratio 1.20 1.21 1.24
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DEBT MANAGEMENT RATIOS
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Debt to Asset 0.70 0.50 0.54
Debt to Equity Ratio 2.35 1.00 1.17
Long Term Debt to Equity 0.005 0.29 0.31
Times Interest Earned 12.62 2.42 2.38
MARKET RATIOS
Earning per share 1.35 1.42 1.40
Price/Earnings Ratio 7.50 5.55 5.16
Dividend per share 1.00 0.75 1.00
Book value per share 12.63 13.16 17.81
No of Shares issued
(in thousands) 50,400 100,800 100,800
Market prices(Average) 10.13 7.88 7.23
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi.
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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