Habib Metro Mod (PSX: HMM) is managed by Habib Metropolitan Modaraba Management Company (Private) Limited. It was floated under the Modaraba Companies and Modaraba (Floatation and control) Ordinance, 1980. It is engaged Residual Value car financing model on diminishing musharaka basis, providing finance for solar power equipment’s and other related business.
Certificate holding pattern
As at June 30, 2021, over 70 percent of the certificates were held under associated companies, undertakings and related parties. Within this, 60 percent of the certificates are owned by Habib Metropolitan Bank Limited, while the remaining 10 percent are with Habib Metropolitan Modaraba Management Company (Private) Limited. Over 19 percent certificates are held under “others” and close to 11 percent certificates are owned by the local general public.
Historical operational performance
The modaraba saw its operations from October 2017 therefore the statements of 2018 reveal information for the nine months till June 2018.
FY19 is the first full year of accounting whereby it saw an income of over Rs 29 million, with majority of the income coming from diminishing musharaka financing, followed by finance income. The modaraba saw its financing assets portfolio higher to Rs 168 million, versus Rs 12 million seen in the previous year. Despite the rise, it was unable to achieve its targeted growth. This was due to a slowdown in the economy and increase in car prices that resulted in slow disbursement for the modaraba since it discouraged the customers to borrow auto financing. During the year, it also introduced a new product- Residual Value (RV) financing. With expenses incurred, the modaraba earned a net margin of almost 38 percent.
In FY20, the modaraba’s net income increased by 72.5 percent, with income from diminishing musharaka more than doubling year on year. However, with the economic and business situation further worsened due to the outbreak of the Covid-19 pandemic, the modaraba’s booking of financing assets reduced to Rs 79 million for the year. Moreover, it could not increase the financing assets size. The rationale for this low disbursement was the rise in car prices and as well as the discount rate that increased normal lending rates. However, the rise in revenue allowed for higher profitability as net margin was recorded at over 55 percent for the year. In FY20, the modaraba saw additional expenses that were absent in FY19, such as modaraba company’s management remuneration and the sales tax on it. But with the higher revenue, it was able to cover expenses as well as earn a higher profit margin.
In FY21, the modaraba’s revenue shrunk by almost 38 percent to fall to Rs 36.8 million, compared to Rs 50.7 million. Within the total revenue pie, income from diminishing musharaka, profit on modaraba’s deposit accounts and other finance income witnessed a reduction that led to an overall 38 percent decrease. However, the modaraba claims to have seen an increase in booking asset and book size. The financing assets portfolio increased to almost Rs 285 million compared to Rs 195 million in the previous year. The decrease in revenue also reflected in the decrease in bottomline with a net margin of 44 percent. The loss in revenue was attributed to the lowering of the discount rates by the State Bank of Pakistan. However, the modaraba experienced an increase in auto financing book which implied the acceptability of the Residual Value financing, yet the penetration was lower than that of the normal car financing. The modaraba expects to increase financing assets portfolio.
Quarterly results and future outlook
In the first quarter of FY22, the modaraba saw revenue coming from a single major stream of diminishing musharaka financing that saw an increase of almost 20 percent year on year. The balance sheet footing of the modaraba increased marginally to Rs 360 million, compared to Rs 354 million in the previous year. However, profitability has been lower year on year to Rs 2.9 million compared to Rs 4.2 million. This can be attributed to the incurrence of taxation that was absent in the previous year as in the previous year the Federal government withdrew the tax exemption status for the modaraba sector and tax is to be applicable for the sector in FY22. Therefore, the company made a provision for tax of Rs 1.2 million for the quarter.
The second quarter of FY22 saw revenue higher by over 26 percent year on year. The modaraba saw significant increases in income from diminishing musharaka financing and profit on modaraba’s deposit accounts. Cumulatively, during the first half of FY22, disbursement increased to almost Rs 85 million versus Rs 63.8 million. The size of financing assets also rose to Rs 303.6 million. For 2QFY22, despite the incidence of tax, the modaraba witnessed a marginal rise in net margin to 41.8 percent, versus 40 percent in 2QFY21.
The rising policy rate, inflation, current account and trade deficit along with currency devaluation poses challenges for the economy and businesses, but stable demand strong foreign remittances are also some supporting factors.