Orix Leasing Pakistan Limited was incorporated under the Companies Ordinance on July 1, 1986 as a joint venture between Orix Corporation Japan and a local investor. The company is a non-banking finance company (NBFC) with the license from the SECP to undertake leasing business under the NBFC Rules 2003. The firm has headquarters in Karachi and is present in many cities across Pakistan. The company also has international linkages through its share in four associate companies operating in the leasing business Egypt, Oman, Saudi Arabia, and the UAE. The company is listed on Pakistan Stock Exchange under the moniker OLPL. Its majority shareholding is held by ORIX Corporation of Japan, with a 49.57 percent stake in the firm. The firm's latest available shareholding pattern is provided below.
Product portfolio OLPL is active in both financial and operating lease segments. Its financial lease products include leasing of plant and machinery, and vehicles, both personal cars (saloons) and commercial vehicles, to businesses (eg SMEs and corporates) as well as individuals. As per company information, disbursements stood at Rs 14.55 billion in FY16, with 80 percent of it going to commercial vehicle and saloon cars and the remaining 20 percent to plant and machinery. The firm's operating lease business is mostly concentrated in short-term rental of electricity generators. The firm also provides microfinance services, whose disbursements stood at Rs 705 million in FY16, serving 21,884 customers. The company's product portfolio also lists certificates of deposits.
During 2016, OLPL acquired Standard Chartered Leasing Limited. As a result of another two transactions, Standard Chartered Services (SCS) and Standard Chartered Modaraba (SCM) are now Orix subsidiaries. SCS has been renamed as Orix Services and SCM as Orix Modaraba, which has helped the firm enter the Islamic finance market. OLPL recently discontinued its e-business segment to focus on core business.
Recent financial performance Over the last six full fiscal years, OLPL has shown a consistent, double-digit increase in its bottom line. Net profits of the firm stood at Rs 742 million in FY16 - growing at a CAGR of roughly 39 percent in this period and helping the firm expand its net margin from 5 percent in FY11 to 18 percent by FY16. However, a closer look suggests that such improvements had more to do with cost management than top line growth.
The firm's top line - which stood at Rs 4.1 billion in FY16 - has only grown nominally in recent years, with the CAGR between FY11 and FY16 coming at 5.1 percent. OLPL's core business, 'income from operations' - which stood at Rs 3.4 billion and provided 82 percent share to the top line in FY16 - has declined in real terms, as its CAGR was 3 percent in the period under review.
In the core business, the firm's financial lease revenues have only grown marginally over the years, with a CAGR of 2 percent. This is due to lower interest rates as well as greater competition from banks that have been active, especially in the vehicle leasing segment. OLPL's operating lease business is under even more stress, declining with a negative CAGR of roughly 4 percent in the six-year period. This slump is said to be on account of a drop in leasing of electricity generators, as a result of gas shortages in Pakistan's northern region as well as improved power situation. Thanks to higher disbursements, some support is provided by mark-up income - which is earned on vehicle finance and micro credit- that showed a CAGR of roughly 30 percent since FY11 to reach Rs 507 million in FY16.
Meanwhile, OLPL's non-core, or 'other operating activities', have given the top line some fillip. This segment's revenues - which stood at Rs 736 million in FY16, showing a CAGR of 20 percent since FY11 - have been powered both by 'other income-net' and 'profit share' in the firm's overseas associates. Major boost came during FY16 when net other income grew by a massive 61 percent year-on-year, chiefly due to the Rs 236 million gain arising on account of bargain purchase of Standard Chartered Leasing during the year. However, the firm's profit share from associates has lately been under stress due to oil-induced economic slowdown in the Middle East.
Such a growth pattern since FY11 has ensured that the firm's core operations ('income from operations') have their top line share taken down from 91 percent in FY11 to 82 percent in FY16. More specifically, the firm's leasing business (financial and operating leases) had come down to 70 percent of the overall top line in FY16, from 86 percent in FY11.
Amid low top line growth, it is cost management that has helped the firm post growing profits in recent years. OLPL's overall expenses, coming at Rs 2.9 billion in FY16, had grown at a CAGR of 1.2 percent since FY11. Within that, finance costs, which used to eat up over 50 percent of top line in the early years this decade, have remained in check and depleted about 41 percent of total income in FY16. This is one positive result of lower interest rates in recent years for the firm.
As a result of higher salaries and allowances to retain the skilled staff, the administrative expenses, however, have grown at a CAGR of 9 percent, out of step with the top line growth in the period. Thus, administrative overheads consumed 21 percent of the top line in FY16, up from 17 percent in FY11. Meanwhile, direct cost of leases has come down in recent years, exhausting 10 percent of the top line in FY16, lower than 13 percent seen in FY11. This is in line with the reduced operating lease revenues resulting in lower expenses on maintenance, insurance and depreciation of the assets. Provision for lease and loan losses came to about 6 percent of the top line in FY16, which is in line with the previous five-year average of 5 percent.
Latest financials For the nine-month period ended March 31, 2017, OLPL has again recorded a marginal growth in its top line. As usual, the core income has shown some increase, chiefly on account of an increase in financial lease revenues even as operating lease proceeds slipped on a year-on-year basis. But worryingly, the non-core income from other operating activities has taken a dip, mainly due to a fall in profit share in overseas associates. In the end, the firm was still able to record a 15 percent bottom line growth, mainly on account of almost negligible net provisions for lease and loan losses, besides a drop in expenses on finance costs and direct lease costs.
Stock performance
With an average daily volume of roughly 137,000 shares in the year to date, the stock garners interest from those who are into day trading. However, the stock has largely underperformed the broader index in the year to date.
Outlook Core business must respond better for the firm. The continually low interest rate environment augurs well for the leasing business. But OLPL faces competitive pressures from commercial banks, which provide a more comprehensive financial product portfolio than a leasing NBFC can provide. To counter that, the firm may need to focus more on the under-served segments, mainly the SMEs. Besides, it may also need to become a little more aggressive and substantially increase its disbursements to grow the leasing revenues.
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OLPL: Pattern of shareholding (as at June 30, 2016) No. of Shares % of total
shareholders held shares
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Directors and their spouses and minor children 40 153,871 0.19%
Associated company (Orix Corporation) 1 40,691,839 49.57%
Public sector companies and corporations 2 5,763,597 7.02%
Banks, DFIs, NBFCs, Insurance co's, mutual funds 13 3,959,093 4.82%
NIT/ICP 1 700,080 0.85%
Foreign investors 53 13,770,173 16.78%
Others 14 361,386 0.44%
Individuals 3,309 14,019,513 17.08%
Joint stock companies 31 2,663,242 3.24%
Total 3,464 82,082,794 100%
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Source: Company accounts
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OLPL: Financial snapshot
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Rs (mn) FY16 FY15 FY14 FY13 FY12 FY11
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Operating results
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Total disbursements 14,551 13,408 11,097 9,056 7,844 8,058
Revenues 4,101 3,973 3,820 3,560 3,346 3,183
Lease revenues 2,859 2,925 2,927 2,750 2,731 2,758
Financial charges 1,666 1,728 1,658 1,654 1,868 1,796
Provisions and impairments 215 162 184 257 199 213
Profit for the year 742 671 516 337 202 145
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Financial position
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Gross lease reveivables 29,503 23,871 20,611 18,233 18,368 19,802
Total assets 35,313 28,318 24,449 23,127 22,028 21,802
Long-term debts 12,022 9,825 7,074 8,578 6,484 6,563
Total liabilities 31,142 24,769 21,385 20,456 19,580 19,555
Shareholders' equity 3,848 3,437 2,983 2,589 2,363 2,161
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Financial ratios
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Profit before tax over revenue 23.6% 20.3% 16.8% 11.6% 8.2% 7.1%
Gross spread 43.9% 40.3% 34.3% 30.9% 22.1% 22.6%
Return on assets 3.07% 3.35% 2.83% 1.95% 1.20% 0.80%
Return on equity 20.83% 20.90% 18.53% 13.65% 8.13% 6.93%
Dividend payout 49.78% 55.03% 55.64% 53.63% 60.90% 56.70%
Earning per share-Rs 9.04 8.18 6.29 4.11 2.46 1.76
Price to earning ratio 5.47 7.55 5.40 4.44 4.41 3.16
Debt to equity ratio 5.40 4.74 4.67 5.34 5.60 4.64
Interest cover ratio 1.71 1.59 1.50 1.41 1.20 1.25
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Source: Company accounts
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OLPL: Topline breakup
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Rs (mn) FY16 FY15 FY14 FY13 FY12 FY11
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Income from Operations 3,365 3,387 3,373 3,146 2,964 2,898
Finance lease 2,324 2,261 1,974 1,900 2,013 2,110
Operating lease 534 664 953 850 717 649
Mark-up on term/factoring finance 507 462 446 396 234 139
Income from other operating activities 736 586 447 414 385 293
Other income-net 502 311 224 249 261 189
Profit share in associated firms 234 275 223 165 124 104
Total income 4,101 3,973 3,820 3,560 3,349 3,191
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Source: Company accounts
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OLPL: Latest financials
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Rs (mn) 9MFY17 9MFY16 Chg
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Total income 2884 2843 1.4%
Income from operations 2548 2501 1.9%
Income from other activities 335 342 -2.1%
Total expenses 2178 2155 1.1%
Provisions and impairments 1 60 -97.8%
Profit before tax 704 628 12.2%
Net profit for the period 544 473 14.9%
Earning per share-Rs 6.63 5.77 14.9%
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