September 24, 2021 (MLN): The management of Dawood Equities Limited has informed via notification to exchange that the Pakistan Credit Rating Agency Limited (PACRA) recently assigned Initial Entity Rating to the company at A- for long term and A2 for short term basis with a stable outlook.
The ratings assigned to Dawood Equities Limited (“DEL” or “the Company”) draw comfort from improved financial performance, revamped business strategy, improved cost control measures, and enhanced customer base.
The assigned rating also incorporates the Company's high exposure to market risk due to the proprietary book, augmented by well-established policies to mitigate conflict of interest. The revenue base of the Company largely comprises earnings from equity brokerage through a mix of investors along with support from capital gains on investments.
Over the past few years, the Company has posted a steady growth in revenue leading to a reduction in accumulated losses however, given the lack of diversity in operations profitability is likely to remain volatile. Going forward, the Company is planning to diversify its revenue stream through underwriting and advisory services. Zero leveraged capital structure and strong liquidity buffers continue to provide support to the overall financial risk profile.
During 9MFY21, the brokerage commission witnessed an increase of —2.4x resulting in profit after tax of —PKR 42m1n (9MFY20:PKR 9.2mIn). While the equity of the Company stood at PKR 276mln at the end of Mar'21. This is supplemented by a pledge of sponsor's shares, with the latest market value of above PKR 150mln, in favor of DEL. Based on these securities, in addition to the securities available on the balance sheet, a credit line of PKR I 50mln is exclusively available to the Company.
As per the press statement issued by PACRA, the assigned rating is also supported by an experienced management team. The Company has a lean organization structure with most of the heads reporting to the CEO. Sound risk assessment and dedicated personnel for compliance function provide further support to the ratings.
The internal audit function of the Company is in-house and reports independently to the audit committee. The Company has an accustomed IT infrastructure in place.
The ratings would remain dependent on the Company's ability to sustain stable equity, improved profitability, and stable market share.
Furthermore, retention of key personnel, strong Board framework, insightful monitoring of market risk, liquidity management, upholding strong internal controls would remain imperative.
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