Arif Habib’s reduction in expenses outpaces decline in brokerage and advisory income: JCR-VIS

January 18, 2019 (MLN): JCR-VIS Credit Rating Company has reaffirmed the entity ratings of Arif Habib Limited (AHL) at ‘AA-/A-1’ (Double A Minus/A-One). Outlook on the assigned ratings is ‘Stable’.

The assigned ratings are underpinned by the sponsors’ profile, with majority shareholding vested with Arif Habib Corporation Limited, the holding company. The sponsor owns significant interests in fertilizers, securities & commodities brokerage, corporate advisory, asset management, cement and steel sectors. Ratings also reflect healthy growth in market share during FY18, diversified revenue streams and healthy financial risk profile.

AHL remains one of the prominent players in both, equity and corporate advisory domain with a market share of ~9% (based on ready and future value) in equity trading. In line with market trend, profitability depicted decline on account of reduction in equity brokerage and corporate advisory income. Decrease in recurring revenue outpaced reduction in expenses (expenses included investment in human capital to enhance market share), as a result, efficiency ratio of the company weakened.

During the review period, the company has focused on growth in business from high net worth individuals and institutions through strengthening of human resources, sales team reorganization, branch expansion and relationship management.

Conversely, the company made sizeable investment in property. With large direct exposure to equity market, market risk is considered to be on the higher side. A major chunk of the investment portfolio pertains to investment in group companies and proprietary investments with around one-tenth of the portfolio comprising ready future transactions.