20000221

Brief recordings

BY SCANNER

Modarabas

First Allied Bank Modaraba

Year Ended June 30, 1999

Overview

This is relatively large Modaraba out of 52 Modarabas in this sector. The Modaraba's management company is wholly owned subsidiary of Allied Bank Ltd. The Modaraba has expanded its equity base to Rs 424 million and total asset base reached Rs 0.86 billion. Morabaha and Musharaka Financing continued to be the core business segment as it formed 46% of total assets and generated 54% of the total revenue. Leasing portfolio comprised 32% of total assets and generated lease revenue of Rs 38.4 million posting 27% growth. The Modaraba's total revenue marginally declined to Rs 121 million from Rs 123 million Net Profit declined to Rs 57.93 million from Rs 66.14 million in the preceding year. The Modaraba declared cash dividend at 12.5%. The Modaraba's directors have approved to raise Rs 100 million from the capital market through floating of Musharaka Income securities notes.

First Allied Bank Modaraba is a multipurpose, perpetual Modaraba. It is managed by Allied Management Services (Private) Limited, a company incorporated in the province of Sindh. The Management Company is a subsidiary of Allied Bank Limited. First Allied Bank Modaraba (FABM) was listed at the stock exchange in 1993.

At present the certificate in the Modaraba is trading at Rs 7 at 30% discount to its par value at Rs 10. But most of the Modarabas sector's certificates are quoted much below the market value of FABM. Out of fifty two Modarabas only three Modarabas' certificates are priced above the prices of the certificate of FABM. Those Modarabas are First Paramount Modaraba, (Rs 11) Grindlays Modaraba (Rs 15.50) and Imrooz Modaraba (Rs 37.00).

The price of FABM certificate is grossly under valued relative to its book value of the certificate at Rs 12.12. In terms of the share capital FABM is large Modaraba its paid-up capital is high at Rs 350 million. FABM has also excellent track record of profit distribution as it has not skipped any dividend payout since 1995.

In 1995, the dividend payout was at 22.5%. For the two years 1996 to 1997 the yearly dividend payout was 15% per annum. For the year, 1998-99, the payout rate was substantially reduced to 12.5% or Rs 1.25 per certificate although the earning per certificate works out to Rs 1.65 so a repeat performance of 15% of last several years was possible for the year under review. During 1998-99, the period under review the Modaraba posted Gross Revenue at Rs 121.15 million (1997-98: Rs 123.15 million) which was marginally lower than preceding year's.

On the other hand shareholders' equity base expanded at Rs 424.32 million from Rs 410.14 million in the preceding year. The balance sheet footing also enlarged by Rs 23.19 million over preceding year.

Chairman Rashid M. Chaudhry explained about the contribution of each business segment of the Modaraba.

"Musharika/Morabaha financing continued to be the core business segment forming 46% share of total assets and contributed 54% to the total revenue generated during the period under review. The lease portfolio registered a growth of 23% over the last year. Lease financing forms 32% share of total assets and it generated total revenue of Rs 38.403 million, an increase of 27% over the last year."

The directors also reported that the lease portfolio expanded through micro leasing to the private sector. The micro leasing included salaried persons. Recovery position in respect of this portfolio was reported 100% and zero default was the speciality of this business segment. The management's strategic decision has produced encouraging results and provides all the reason to justify strengthening the base of this business.

The Modaraba's large investment portfolio is almost relegated to unremunerative business segment. However the Chairman further insight in this aspect.

"During the period, the corporate results and announcements were generally disappointing and investment in various companies exposed to high risk due to low business activities. Hence, the stock market remained sluggish throughout the period. Since your Modaraba has been pursuing a prudent policy of making full provision on account of diminution in the value of stock exchange securities hence the adverse impact thereof has not been felt."

The resource mobilization has been another strong point of the Modaraba. In addition to large internal source of finance such as equity and security deposits, the Modaraba has availed long-term Musharaka finance of Rs 300 million from Allied Bank and short-term Musharika finance of Rs 28 million from First Ibrahim Modaraba and International Multi Leasing Corporation.

The Modaraba management has projected a safe investment scenario from the premises of revised priorities of the government.

"So anticipating healthy investment environment, the Board of Directors has approved floating Musharaka Based Valuable Income Securities (M-VIS) of Rs 100 million for raising long-term funds at competitive rates from capital market in a purely Islamic way. The mandate for the rating of M-VIS Investment has been awarded to DCR-VS Credit Rating Company Ltd.

June 30 1999 1998

Capital & Liabilities ......

Paid-up Capital: 350.00 350.00

Reserves: 71.07 59.49

Statutory Unapp. Profit: 3.25 0.65

Equity: 424.32 410.14

L.T. Debts: 300.00 270.00

L.T. Security Deposits: 23.20 26.64

Current Liabilities: 113.09 130.64

Assets:

Fixed Assets - Own Use: 0.16 0.22

L.T. Investment Lease Finance: 206.11 168.75

L.T. Musharika Finance: 73.76 81.17

L.T. Investment: 28.40 25.62

Other Non-Current Assets: 0.40 0.96

Current Assets: 551.78 560.70

Total Assets: 860.61 837.42

Revenue, Profit & Payout:

Income from Musharika: 62.01 67.16

Income from Leasing Operations: 38.40 30.20

Income from Morabaha Finances: 5.35 12.08

Trading Profit: 2.49 3.37

(Loss) Gain on sale of Investment: Ñ (6.27)

Return on Bank Deposit: 7.04 10.21

Other Income: 5.86 6.40

Gross Revenue: 121.15 123.15

Expenditure Management Fee: 58.94 49.01

Profit Before Tax: 62.21 74.14

Net Profit After Taxation: 57.93 66.14

Dividend Cash 12.5% (1998: 15%): 43.75 52.50

Financial Ratios:

Certificate Price (Rs) 16/2/2000: 7.00 Ñ

Book Value Per Share (Rs): 12.12 11.72

Price/Book Value Ratio: 0.58 Ñ

Debt/Equity Ratio: 41.59 40.60

Current Ratio: 4.88 4.29

Net Profit to Gross Revenue (%): 47.82 53.71

EPC (Rs): 1.65 1.89

Price/Earning Ratio: 4.24 Ñ

R.O.E. (%): 13.65 16.13

R.O.A. (%): 6.73 7.90

R.O.C.E. (%): 7.75 9.36

Company Information: Allied Management Services (Private) Limited.

Modaraba Company:

Chairman: Rashid M. Chaudhry; Chief Executive: Tariq Saeed Effandi; Director: Akhtar Ali Khan/I.A. Usman; Company Secretary: Salman A. Qazalbash; Registered Office: NIC Building, Abbasi Shaheed Road, Karachi; Phone: 5674024-6; Fax: 5674023/5660136; Email: fabm@digicom.net.pk.