TRG Pakistan Limited

TRG Pakistan Limited (PSX: TRG) was incorporated in Pakistan as a public limited company in 2002. The company obtained license from SECP to perform as a Non-Banking Finance Company and undertake venture capitalist investment. The company is engaged in investments particularly in Technology, medical insurance and IT-enabled services through its associate, the Resource Group International Limited (TRGIL).

Pattern of Shareholding

As of June 30, 2023, TRG has a total of 545.391 million shares outstanding which are held by 10,465 shareholders. Local general public has the majority stake of 35.89 percent in the company followed by associated companies holding 34.5 percent shares. Banks, DFIs and NBFIs account for 4.99 percent of TRG’s shares while foreign companies hold 4.13 percent shares. Around 3.05 percent of TRG’s shares are held by foreign general public and 1.54 percent by insurance companies. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-23)

Except for a marginal year-on-year rise in 2019, TRG’s topline has been descending over the period under consideration. TRG recovered from net loss in 2019 with tremendous bottomline growth for the subsequent two years. The company fell into net losses yet again in 2022 and 2023. TRG’s margins boasted their optimum high values in 2021. The detailed performance review of the period under consideration is given below.

In 2019, TRG’s topline which comprises of interest income posted year-on-year rise of 5 percent. As of June 30, 2019, TRG’s investment in TRGIL stood at Rs.16.4 billion versus Rs.16.1 billion in June 2018, representing year-on-year increase of 1.86 percent. The rise in interest income represents interest income on loan granted to TRG (Private) Limited, an indirect subsidiary of TRG for working capital as well as operational requirements. Lower exchange loss of Rs. 2.45 million incurred during the year versus exchange loss of Rs.222 million in 2018, resulted in 46 percent year-on-year decline in administrative expense incurred during the year. As a consequence, TRG was able to record operating profit of Rs.2.39 million in 2019 versus operating loss of Rs.216.92 million in 2018. OP margin stood at 1 percent in 2019. TRG recorded net profit of Rs.1.855 million in 2019 versus net loss of Rs.217.54 million in 2018. EPS stood at Rs.0.003 in 2019 versus loss per share of Rs.0.0399 in 2018. NP margin stood at 0.8 percent in 2019.

In 2020, TRG’s interest income dropped by 2 percent year-on-year. TRG’s investment in TRGIL as of June 30, 2020 stood at Rs.21.8 billion, up 32.93 percent year-on-year. The drop in interest income was due to maturity of loan amount granted to TRG (Private) Limited was matured in November 2020. Administrative & other expenses also dropped by 2 percent in 2020 due to lower management fee and exchange loss. As a consequence, TRG recorded operating profit of Rs.2.74 million in 2020, up 14 percent year-on-year. This translated into OP margin of 1.2 percent in 2021. During the year, TRG also recorded share of profit of Rs.86.95 million in equity accounted investee i.e. TRGIL. This culminated in net profit of Rs.76.165 million in 2020, up 4006 percent. This translated into EPS of Rs.0.14 in 2019 with NP margin of 32.1 percent.

TRG’s interest income fell by 35 percent year-on-year in 2021. During the year, TRG’s share in TRGIL rose to Rs.49.6 billion, up 127.5 percent year-on-year. The plunge in interest income was mainly on account of lower interest income earned on loans granted to related parties as all the outstanding loans were settled during the year. Interest income on bank balances staggeringly grew during the year as TRG’s cash & bank balances posted robust growth of 180 times in 2021 to clock in at Rs.598.429 million. Administrative and other expenses drastically fell by 86 percent in 2021 as no exchange loss was incurred during the year due to appreciation in the value of local currency. Furthermore, management fee charged under managerial services agreement with TRGIL also dropped to Rs.15 million in 2021 from Rs.210 million in 2020. As a result, TRGIL posted operating profit of Rs.122.09 million in 2021 with OP margin climbing up to 79 percent. TRG also recorded share of profit Rs.30,312.64 million in equity accounted investee i.e. TRGIL, up 348 times year-on-year. After accounting for taxation (primarily deferred tax liabilities), TRG recorded net profit of Rs.25852.43 million in 2021 with EPS of Rs.47.4 and NP margin of 16739 percent.

In 2022, TRG’s topline further eroded by 94 percent year-on-year. As loans to related parties were settled in the previous year, TRG’s interest income comprised of interest earned on bank deposits which also drastically shrank despite high discount rate as the company’s cash and bank balances stooped to Rs.34.884 million in 2022, down 94.2 percent year-on-year. Administrative and other expense mounted by 43 percent year-on-year in 2022 on account of higher exchange loss as well as other miscellaneous expenses incurred during the year. This translated into operating loss of Rs.37.82 million in 2022. As against past two years where TRG recorded share of profit in equity accounted investee, in 2022, the company registered share of loss of Rs.14,732.07 million in equity accounted investee i.e. TRGIL. During the year, TRGIL shareholders redeemed their preference shares in exchange for cash and shares of a portfolio company held by TRGIL. The difference between the redemption value and original share prices was recorded by TRGIL as one-time non-cash charge. Moreover, TRGIL also incurred mark-to-market loss on IBEX shares as the share price of IBEX on NASDAQ plummeted by 14 percent in 2022. The share of loss on equity accounted investee was partially offset by dilution gain of Rs.8,863.69 million in equity accounted investee as due to the redemption of preference shares, TRG’s equity holding in TRGIL increased without change in the company’s investment. As of June 30, 2022, TRG’s share in TRGIL stood at Rs.56.7 billion, up 14.3 percent year-on-year. TRG also recorded other income of Rs.23.1 million on account of partial waiver granted by TRGIL on the balance of USD 173,517 payable to them as at June 30, 2021. Tax of Rs.902.4 million was reversed during the year. Yet, TRG posted net loss of Rs.4980.726 million in 2022 with loss per share of Rs.9.132.

TRG recorded topline contraction of 89 percent in 2023. TRG’s interest income represented interest earned on bank deposits. Administrative and other expense surged by 314.5 percent in 2023 due to higher exchange loss and miscellaneous expenses incurred during the year. Operating loss was recorded at Rs.191.22 million in 2022, up 405.7 percent year-on-year. Share of loss in equity accounted investee stood at Rs.1350.36 million in 2022, down 90.8 percent year-on-year. While TRGIL recorded mark-to-market gain on IBEX shares as their value on NASDAQ increased by 26 percent during the year. However, it was offset by loss emanating from revaluation of TRGIL’s share in the AI software company coupled with operating expense incurred by TRGIL in 2023. Despite reversing tax of Rs.205.53 million, TRG posted net loss of Rs.1336.046 million in 2023, down 73.2 percent year-on-year. Loss per share stood at Rs.2.45 in 2023.

Recent Performance (1HFY24)

During 1HFY24, TRG’s interest income grew by 120 percent year-on-year. This mainly comprised on interest earned on bank deposits. Administrative expense escalated by 104.5 percent during 1HFY24, resulting in operating loss of Rs.133.79 million, up 104.4 percent year-on-year. The company recorded share of loss of Rs.12,311.55 million on equity accounted investee in 1HFY24 versus share of profit of Rs.10,850.97 million during the same period last year. This was due to decrease in the share price of IBEX on NASDAQ as well as decrease in the accounting value of AI Software business which was the consequence of slowdown of global industry multiples in the sector. As a consequence, TRG’s share in TRGIL dropped to Rs.64.7 billion as of December 31, 2023 versus Rs.78.1 billion as of June 30, 2023. Despite reversal of tax, TRG posted net loss of Rs.10,598.61 million in 1HFY24 versus net profit of Rs.9157.858 million during the same period last year. Loss per share stood at Rs.19.43 in 1HFY24 versus EPS of Rs.16.79 in 1HFY23.

Future Outlook

The value of TRG’s assets is contingent upon its investment in its sole operating asset TRGIL which in turn is dependent upon the value of IBEX and AI software business. During 1HFY24, IBEX won new client relationships in sectors such as HealthTech, FinTech, Retail & E-commerce etc as a result of increased investments in business development efforts. AI software business is also making tireless efforts to add new customers, increase operational efficiency, refine its go-to-market sale strategies and commercialize newly developed products. If these efforts materialize, TRG may be able to push its bottomline out of losses.