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PACRA Maintains Entity Ratings of Dawood Equities Limited

Lahore, September 21, 2022 (PPI-OT):Dawood Equities Limited (‘DEL’ or ‘the Company’) mainly provides the services of equity brokerage while the Company has diversified its revenue base with the addition of underwriting income. DEL has a sustained position in the market and the brokerage revenue mainly stems from Retail and HNWI clients, while corporate clientele is also present. Parallel to the declining market volumes, the brokerage revenue has decreased by ~42% to ~PKR 76mln in FY22 when compared with FY21; however, the topline has been augmented by ~PKR 34mln of underwriting income.

The Company earned a profit after tax of ~PKR 13mln during FY22 (FY21: ~PKR 42mln), where the decrease is mainly due to unrealized losses on prop-book and lower brokerage revenue as a result of low market volumes. The equity of DEL is adequate and stood at ~PKR 283mln at end-Jun’22; however, credit lines are available to augment the equity base. The ratings take comfort from a low-leveraged capital structure.

The Company manages its own proprietary book which exposes it to market risk to some extent; however, the Investment Committee (IC) keeps a close eye on market conditions to effectively manage its proprietary investments. The Company has a strong governance structure supported by the presence of independent directors and requisite board-level committees.

The ratings take comfort from an experienced and qualified management team. The client services are adequate, supported by the presence of a research analyst while the strength of the research department may be enhanced. The Company has an in-house internal audit function while the appointment of a category ‘A’ auditor is well noted. However, the separation of the Risk Management and Compliance functions would improve the control framework further moving forward.

The Company plans to improve its product and geographical diversification in the near future to improve client outreach. The management also intends to enhance their corporate finance function to add to their topline.

The ratings would remain dependent on the Company’s ability to enhance and sustain the equity base, improvement in profitability and stability of market share are important. Furthermore, retention of key personnel, strong governance framework, diligent monitoring of market risk, liquidity management, and upholding strong internal controls would remain imperative.

For more information, contact:
Analyst,
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore, Pakistan
Tel: +92-42-5869504-6
Fax: +92-42-5830425
Email: hammad.rashid@pacra.com
Website: www.pacra.com

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