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Modarabas

Modaraba Al- Mali

Year Ended June 30, 1999

Overview--------

This is one of the pioneering Modarabas but like other members in the Modaraba sector, the Modaraba has remained relatively without much resource mobilization. On the other hand poor legislation about the recovery of receivables have also been deterrent in the expansion. Last year its large revenue was subjected to the stringent policy of provisioning. This strategy has now paid dividend. Additionally, fraction of last year's provision has been written back to the income account. The Modaraba has definitely come out of hibernation and long winter seems to be now over with the good news of relatively large net profit of Rs 30 million. Even certificate holders also got the good news in the tangible shape of Rs 1.25 per certificate as cash dividend. The Chairman and his Board are confident of continued performance.

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The Modaraba is one of the pioneers among Sharia'a, a based financial institutions. It has been run by senior bankers of world repute. At its apex as a chairman of the Modaraba company is Iradat Husain who had been president of a number of large banks both inside the country and overseas.

Maqbool Hussain is the vice chairman of the Modaraba Company and he had been also in a number of foreign banks, holding directors' and senior executive positions.

Modaraba Al-Mali was listed at the Stock Exchange in 1987 and its 10-rupee certificates are quoted on all stock exchanges of the country.

Modaraba Al-Mali, is a multipurpose perpetual Modaraba formed under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance 1980 and the rules framed thereunder. The Modaraba is managed by its Modaraba company, Al-Mal Corporation Ltd.

As it is a multi purpose Modaraba it can undertake a wide range of Sharia'a based financing activities even trading business. However its core business remained leasing of plant and machinery, motor vehicles, equipments even furniture, fixture and home appliances.

Asset wise its leasing exposure has increased, in the plant and machinery. During the financial year 1998-99 which is the period under review, the Modaraba's lease exposure was 45.84% of total leased assets and the exposure increased by 5.73 percentage points over preceding year's.

The increase of lease in plant and machinery was due to slight shift from motor vehicles and equipment leases. Last year lease of motor vehicles comprised 32.89% of total leased assets but lease in this asset came down to 30.06% in 1998-99. Lease exposure in equipment also declined to 23.7% from 26.1% in the preceding year.

The exposure in lease by industrial sub-sector, was well diversified to ensure that risk might not increase due to business cycle in a particular sector. The largest exposure of 13% was in textile and garments sector. This sector has seen tough times for more than 6 years.

The identical exposure is in transport and communications sector at 13%.

Expansion in lease business depends on resource mobilisation as well as recovery of non performing assets. In both areas Modaraba sector's effort has been poor.

The Chairman of the Modaraba shares his insight about future prospects with the certificate holders.

"The future business prospects depend largely on the economic policies of the new government. The introduction of effective legislation for recovery of overdues is expected to boost the leasing and financial sector. We are negotiating with few banks and financial institutions for obtaining additional Morabaha lines to augment our resource base. The management is confident that the improvement in current year's results will continue in future years as well."

During the year under review the Modaraba has produced good results in lease business. But short term Musharika and Morabaha finance portfolio in the aggregate amount marginally declined. Leased assets expanded by 10.9% to Rs 225.47 million from previous year's Rs 203.37 million.

The aggregate amount in the Musharika and Morabaha finance amounted to Rs 16.03 million which amount was marginally lower than preceding year's. However revenue from these activities were up by 57.8% to Rs 3.93 million over preceding year's Rs 2.49 million. Income from leasing operations registered commendable rise at 17.4% to Rs 124.09 million as compared to the income of Rs 105.66 million posted in the preceding year.

Gross Revenue was of substantial amount at Rs 110.22 million in the preceding year. But then the Modaraba had booked large provision of Rs 20.87 million. So the Modaraba's operation could only breakeven with nominal profit of Rs 0.42 million. But during the year under review gross revenue increased by 17% and posted relatively large net profit at Rs 29.6 million (FY 1997-98: Rs 0.42). The Modaraba also announced cash dividend at 12.5%.

Performance Statistics (Million Rupees)

June 30 1999 1998

Capital & Liabilities

Paid-up Capital 182.57 182.57

Statutory Capital Reserves 20.37 14.46

Unapp. Profit 1.22 0.37

Equity 204.16 197.40

L.T. Debts 1.19 6.35

Customer's Security Deposits 28.45 23.26

Current Liabilities 57.71 36.74

Assets

Fixed Assets - Own Use 10.51 11.82

Asset-Leased Out 225.47 203.37

L.T. Investments 6.63 5.06

Other Non Current Assets 0.33 0.13

Current Assets 48.57 43.37

Total Assets 291.51 263.75

Revenue, Profit & Payout

Leasing Income 124.09 105.66

Income from Morabaha and Musharika Finance 3.93 2.49

(Loss) on Sale of Investments (0.56) (0.01)

Dividend Income 0.61 0.89

Other Income 0.92 1.19

Gross Revenue 128.99 110.22

Expenditure mgmt. Fee, Provision 99.00 109.74

Profit Before Taxation 29.99 0.48

Profit After Taxation 29.58 0.42

Dividend Cash 12.5% (1998) Nil 22.82 Ñ

Financial Ratios

Book Value Per Share (Rs) 11.18 10.81

Debt/Equity Ratio 1:99 3:97

Current Ratio 0.84 1.18

Net Profit to Gross Revenue (%) 22.93 0.38

EPC (Rs) `1.62 0.02

R.O.E. (%) 14.48 0.21

R.O.A. (%) 10.15 0.16

R.O.C.E. (%) 12.65 0.21

Company Information: Modaraba Company: Al-Mal Corporation Limited. Chairman: Syed Iradat Husain; Vice Chairman: Maqbool Hussain; Chief Executive: Zafar H. Naqvi; Registered Office: Progressive Square, Sharea Faisal, Karachi (Sindh). Phones: 4547521-5. Fax: 4547526. E-Mail: NA