PACRA Maintains Entity Ratings of OLP Modaraba

The ratings of OLP Modaraba ("the Modaraba") derive strength from its association with OLP Financial Services Pakistan Limited, along with a strong foothold in the industry. The Modaraba's profile is distinguished by its adoption of a prudent risk management strategy, contributing to heightened operational efficiency and a robust client base. The Modaraba emanates strength from its diverse product portfolio in the Islamic financing sector complemented by an extensive geographical presence. Despite economic challenges, the Modaraba managed a strong performance. Major portion of the revenue is generated from the Ijarah Rental (~51%), followed by Diminishing Musharika agreements (~44%). For prudent management of risk, arising in the economy, coupled with high policy rates, the Modaraba made a strategic shift towards diminishing musharaka. Thus, business risk remains afloat. Moreover, confidence is driven by a sound business profile, emanating from sustained profitability. Going forward, transpiring the devised strategy to support the business volumes, hence profitability, in a successful manner remains imperative for the ratings. On the financial risk front, the Modaraba's commendable performance, marked by robust capital adequacy and notable reduction in non-performing loans, reflects sustained growth and value creation for certificate holders through profitable operations and consistent dividend distribution. However, asset quality needs to be strengthened so as to grapple with the challenges in sustaining the Modaraba's liquidity profile - liquidity ratio (FY23: ~8%, FY22: ~10%). Further, the recent investment initiative in mutual funds is expected to support the financial risk aspect. The Modaraba's management is committed to expanding its portfolio with extreme caution and adopting prudent portfolio management to maintain an adequate level of risk. Moreover, strong governance mechanism supports the overall policy framework.
The ratings are dependent on the OLP Modaraba's ability to develop and sustain its business profile while ensuring stable profitability and financial metrics. Deterioration in respective business size and consequently margins, leading to erosion of profitability, and/or coverages will have a negative impact on the ratings.

About the Entity
OLP Modaraba is a perpetual, multipurpose Modaraba listed on the Pakistan Stock Exchange. Overall, OLP Financial Services holds ~20% stake in Modaraba, out of which ~10% is directly owned while the remaining is through its subsidiary, OLP Services Pakistan (Private) Limited (the Management Company of OLP Modaraba). The Modaraba holds a freefloat of ~80%.
The Modaraba's Board is Chaired by Mr. Shaheen Amin. While, the Modaraba is managed by Mr. Raheel Qamar, the CEO. They are supported by experienced team members.