The Pakistan Credit Rating Agency Limited
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Afnan Iqbal

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PACRA Maintains Entity Ratings of Alfalah CLSA Securities (Pvt.) Limited

Rating Type Entity
(28-Apr-23 )
(29-Apr-22 )
Action Maintain Maintain
Long Term A- A-
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Alfalah CLSA Securities (Pvt.) Limited (“ACLSA” or “the Company”) has the backing of Asia’s leading brokerage and investment group “CLSA”. The group has a presence spanning four continents across the globe. ACLSA is primarily engaged in the provision of equity brokerage while the income from investment banking and research also aids the topline. ACLSA enjoys a good market share of ~4.8% whereas the clientele is fairly diversified between institutions/corporates, HNWIs/Retail and foreign. The business model of equity brokers is inherently prone to market volatility. Rising interest rates, political uncertainty, and increasing inflationary pressure during CY22 have impeded investors' sentiments, adversely impacting volumetric activity at PSX. To address the volumetric decline ACLSA shifted its focus towards retail clients and it is worth mentioning that ACLSA has experienced a significant increase of ~56% in its retail client base compared to Dec’21. During CY22, the market volumes reduced by 51% however ACLSA volumes declined only by 13% indicating a better performance compared to the overall market. Moreover, ACLSA’s revenue grew by 31% to ~ PKR 405mln (SPLY: ~PKR 309mln). The PAT has declined when compared with CY21 to stand at ~ PKR 7mln mainly due to increased operating expenses (~PKR 344mln) and finance cost (~PKR 128mln). The Company had a short-term borrowing of ~ PKR 170mln to enhance its exposure margin, which resulted in a significant increase in finance cost. Additionally, due to the geographical diversification operating expenses increases. The Company has an adequate equity base of ~PKR 340mln at end-Dec’22 (SPLY: ~PKR 334mln). The market risk is negligible as the Company does not invest in equity securities. ACLSA has a well-developed organizational structure, with most department heads reporting directly to the CEO. The management is experienced, and the control framework is satisfactory, but the Company could benefit from the addition of a dedicated risk management department. Furthermore, the governance framework could be further improved by appointing independent directors to enhance oversight. As a part of long-term strategic plans, ACLSA has already established a money market and forex department in CY22, which will aid the Company’s topline going forward, and the establishment of facilitation desks in multiple cities. The improvement of the technological platform by integrating with the Bank Alfalah app and geographical diversification is also under consideration.
Going forward, improvement in core income, management’s ability to retain its market share and enhance the volumes and diversity of revenue to improve its competitive position in the brokerage industry. Meanwhile, upholding sound internal controls, retention of key management personnel and diligent monitoring of risks is important.

About the Entity
ACLSA is a TREC holder of the Pakistan Stock Exchange and has been operational since 2004 as a Private Limited Company. ACLSA is registered with SECP under Securities Brokers Regulations 2016. ACLSA is primarily owned by Bank Alfalah Limited with a stake of ~62% while ~25% shares are vested with CLSA Limited. The Company's board has six members, including the CEO - four representing Bank Alfalah Limited and one, Mr. Edward Park, representing CLSA. Mr. Asim Wajid is the Chairman of the Board. Mr. Atif Mohammed, the CEO, has 24+ years of experience in Equity Brokerage and Capital Markets with prestigious institutions.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.