PACRA Maintains Entity Ratings of OLP Modaraba

The ratings of OLP Modaraba ("the Modaraba") derive strength from its association with ORIX Group through OLP Financial Services Pakistan Limited, which holds a strong footing in Pakistan's non-banking financial institutions sector. This instills a strong governance mechanism to support the overall policy framework. The Modaraba's prudent risk management strategy distinguishes its profile, contributing to managed operational efficiency and a stable client base. The Modaraba emanates strength from its diverse product portfolio in the Islamic financing sector, complemented by a diversified geographical presence. The Modaraba generates the majority of its revenue from Diminishing Musharika (~55%) as part of the strategic shift, followed by Ijarah rentals (~40%). During FY24, the topline posted a growth of ~11.3%, backed by inflated benchmark rates. The Modaraba's business risk profile gathers strength from sustained profitability, witnessing an uptick of ~22.5% during FY24, reported at ~PKR 158mln (FY23: ~PKR 129mln). Going forward, due to an incremental decrease in the benchmark rate, the Modaraba needs to devise a strategy to enhance business volumes and maintain profitability. On the financial risk front, the Modaraba has performed well, marked by robust capital adequacy and a reduction in non-performing loans (3MFY25: ~PKR 276mln, 3MFY24: ~PKR 394mln). This reflects sustained growth and value creation for certificate holders through profitable operations and consistent dividend distribution. The Modaraba reflects a strong liquidity position with a liquidity ratio of ~13.7% as of 3MFY25 (3MFY24: ~7%) supported by a substantial quantum of certificates of musharika. Further, investment initiatives in mutual funds are expected to support the financial risk. 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.
The ratings depend on the 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 coverages, will have a negative impact on the ratings.

About the Entity
OLP Modaraba ('the Modaraba') is a perpetual, multipurpose Modaraba listed on the Pakistan Stock Exchange. Overall, OLP Financial Services holds ~20% stake in the Modaraba, out of which ~10% is directly owned, while the remaining is through its subsidiary, OLP Services Pakistan (Private) Limited (the Management Company of the Modaraba). Insurance companies hold ~12.3%, followed by financial institutions (~8.1%) and joint stock companies (~4.6%). The general public holds the remaining (~54.9%) stake.
The Modaraba's Board has been chaired by Mr. Naveed Kamran Baloch since Aug-24. While, Mr. Raheel Qamar heads the Modaraba as the CEO. They are supported by experienced team members.