Thursday, 26 December 2013

What is driving ECOPACK?

What is driving ECOPACK?

Disclaimer: I have a position in this stock

Double digit CSD (Cold and Soft Drink) Growth, under-capacity of PET Bottle Industry and a shift in consumption patterns towards PET bottles, are few of of the factors fueling the changing economics of Ecopack. After 4 years of consecutive losses, the company appears to be finally gaining traction and reporting better numbers. The biggest plus point up till now has been the more than Rs. 2 EPS of the company that was reported for September 30th, 2013, which was up almost 100% when compared to the same period last year. More noteworthy still, is the more that 4 Rs. EPS the company reported for the June quarter Fuelled by seasonally high demand in the summer season apart from the Ramzan which is typically associated with high consumption.

Growing Beverage Industry
According to Coca Cola Icecek, which is the holding company of Coca Cola Pakistan, volumetric sales in first nine months of 2013 were 22% higher year on year. This comes on the back of 23% year on year increase in sales the same period last year resulting in over 50% volumetric growth in two years.
Pepsi reports similar sales growth with growth being in ‘double digits’. All in all this points towards a growing industry. The trend does not appear to be understandable given the lacklustre performance of the economy as a whole but be the same has some parallels to the consumer industry where the success of Unilever and nestle in the past few years can be highlighted. Whether the trends is here to stay for the next few years has yet to be investigated.

Shift towards PET bottles
The shift towards PET bottles, as reported by the company appears to make sense. According to of the company, it is selling more bottles as compared to pre-forms, the latter being a low margin product. This according to the company (as reported in its annual report) is because of the growing demand of PET bottles and low capacity. Now why was the company making losses in the past 4 years was, again as reported by it, was over capacity. However now that the industry does appear to be growing (as reported by the Coca Cola and PepsiCo figures) increased capacity utilization of the PET bottle industry appears to make sense and there is at least some credence to the story.

A Note on Costs
PTA is the ultimate raw material of the company. It appears they are on low levels, largely caused by supply glut in view of new capacities and not enough demand. For instance, in late November, Asian PTA prices hit 16 month low. Low PTA prices obviously auger well for the company in terms of improved margins. However, they are not that good for Lotte PTA.

Highly Seasonal Business

Ecopack has a highly seasonal business. Sales tend to peak in summer months, associated with high beverage consumption and then decline in the winters months. The same effectively translates into the EPS of the company with the company reporting profits in the June and September quarter, and losses in the December and March ones, as given from the below graphs:

So while the last two quarters result has been humongous, (cumulative Rs. 6 for the summer season), we might as usual see some losses in the December quarter.

It appears the stock has risen up 50% in the last few days alone. Whether it goes up any further is yet to be seen.

Wednesday, 23 October 2013

Descon Oxychem Limited - Result for 1st Quarter 2013.

Descon Oxychem Limited announced its result two days back and it was a loss of Rs. 0.5 per share against my forecast of Rs. 0.4-0.5 per share. The basis of my forecast was increased Peroxide Prices which still stands. The result was possibly due to lower volumes as I had already highlighted in my posts.

If investors want to recoup their losses they should probably hold on till December result since apparantly the prices are holding up up till now and any seasonal factors for sales will be accounted for by then as well.


Monday, 21 October 2013

Price Fixing and Power Price Shocks - All in a day for the Cement Industry of Pakistan!

Temporary value drainers like cartel-breaking rumors and electricity prices increases have created significant opportunity in the cement sector which continues to be the most lucrative in Pakistan.

High cement prices, supported by the evil of cartelization, persevering demand (September dispatches were highest in the country’s history) and low coal prices (Coal is the largest cost driver for the industry) are all a few factors that continue to support stellar margins and exceedingly high profits.

Now doubt, the Cement sector has been one of the best performing in the last two years as given by the following graph.

Swamped with cash, companies like Lucky Cement have gone for acquisitions, while others like Pioneer cement have swathes of cash on their balance sheet and no idea what to do with it.

Scares like cartel break-up have hurt investor returns in the last one month, but this only presents the shrewd investor with opportunity. Given investigations and revelations by KASB and other brokerage houses, the scare is unwarranted, and the camaraderie is here to stay. Cement prices are likely going to stay high in the intermediate term and continue to support the margins of these cash cows. In fact just recently there was news of price increases in the Northern region where players have already increased prices by around Rs. 20 per bag.

Given the evil of cartelization, it is thus with a confused and heavy heart that I must present the sector as a viable investment opportunity. While my heart tells me that I should be writing against this evil, let us just put being a Samaritan on the back burner for a while and concentrate on making money.

Owing to recent the cartel scare, along with the electricity price scare, both of which are explained later on cement stocks have been beaten to the point of whimpering. The following chart explains this rather beautifully (as made by me):

Big Scare 1.0

Cartelization is perhaps the most pertinent theme of the industry, perhaps seconded only by low coal prices which is like the sonay pe suhaga. You see the cement industry has vast overcapacity. Days of good development in the early part of 2010s resulted (we all remember financing our cars at 4% don’t we) resulted in increased demand of cement and the industry invested heavily in capacity expansion. However, later on Zardari came and destroyed everything end of story. So now there is significant capacity and not enough demand. Under normal (and fair) economics, the cement companies decrease prices and go into competition, in order to sell more and drive up capacity utilization. But obviously doing so can be disastrous for many as low prices eat into margins. In fact cartelization  was pretty much the case when CCP busted APCMA’s office sometime back ( In don’t know the exact time) and loads of companies such as Pioneer Cement, Gharibwal Cement, Bestway Cement and the world famous Maple  Leaf Cement restructured their debt obligations (effectively defaulted).

Later on, the companies got braver and the country got Zardarier, and ‘The Cartel’ (sounds like the Mafia or something) has been getting its way ever since. Perhaps we need ‘the Untouchables’ to save us. Even Ajay Devgan would do.

However, the scare was not as deadly as it sounds, the apparent damage was caused by a smaller player wanting to drop prices while the a bigger player threatened to walk away which was all amicably resolved later on. No action by the CCP or anything. Just an internal matter. However, the market was not as brave, and the cement index lost significant capitalization as a result. Later on news of a patch up duly appeared the stocks had their heyday again. However, their woes did not end there and then came big scare 2.0.

Big Scare 2.0

Just as stock prices came up at the surface gasping for air, the government dropped another bomb on them by announcing an increase in electricity tariffs by around 60%. The scare hasn’t been felt by the masses as it used to before the present government (political gimmickry?) but cement stocks took hit hard and hence the Big Scare 2.0 as illustrated in above graph.

An increase in electricity prices is especially harmful for those companies, that obviously, buy their electricity form the natural grid rather than produce it in-house. Companies like Fecto Cement take the brunt of such changes.

The price increase would indeed have spelled bad for the industry or specific companies, but the companies have taken a measure to circumvent this by increasing Cement prices by around Rs. 20 per bag - something that they have been doing since the last five years. Here I present a graph that details the quarterly retention prices (prices net of sales tax and other ancillary items) for a few companies during the last eight quarters:

The above chart only presents scanty prices. This is because I am only in the process of building financial models for all these companies. Nevertheless, prices for Pioneer Cement have been plotted back to almost 20 quarters. The graph aptly depicts cement price increase since last 5 years. But stretching back of Pioneer Cement Prices back to September 08 reveals a whole new page of history.

The Big Dip, as highlighted, was a time when CCP took action against alleged cartelization, raided APCMA offices and what not and what ensued was a dip in cement prices. Together with this, many cement companies defaulted since they could not sustain the debt they recently taken up for expansion. Maple leaf, the 16-bagger, is one of them.

Given the fact that the cement companies are getting out hands, would this happen again?

Well, we can only speculate at best. However we do know that the Big Scare 1.0 occurred because of an internal matter and not because of any regulatory action. Secondly, we also know that cartelization is most necessary in face of low capacity utilization. Given September quarter dispatches being the highest in history, I don’t think anyone would want to threaten prices for the sake of increasing utilization. So I believe the high prices are here to stay.

So what about the recent raise in electricity tariffs?

The tariffs will surely have an impact on margins for companies that produce their own electricity, like Fecto Cement. But that is a problem no more, as cement prices have recently been raised by Rs. 15-20 per kg, amounting to around Rs. 300-400 per ton. I have not run any calculations but something tells me they should be enough to cover any margin loss due to the power price hike.

On a side note, companies like DG Khan Cement (despite my detestation for large caps), and others, that produce their own electricity should benefit most from the price hike since for them there has been no price hike. They actually produce their own electricity from gas whose prices really haven’t risen much. Since cement prices move together, these companies will benefit most from the price increase.

Good times are here to stay for the Cement Industry. Inflated prices will keep margins inflated and ensuing earnings which will in fact continue to positively impact valuations. Given the beating the industry has taken over the past few weeks - the prices are at very attractive levels. And given the cement price increase as of late, stock prices are only going to go up and it is only a matter of time when the pre-cartel-breaking-rumors levels are going to be achieved. Perhaps the market already realizes all these factors and for this reason, many stocks in the sector closed at ‘upper-locks’ on the last trading day. Perhaps we are at the advent of another bull run. I see 25-30% returns from current levels in the next few weeks especially in the wake of the upcoming results reason and suggest taking positions as soon as possible for healthy returns, especially in the short term.

The market opens in about 1.5 hours. It is time to jump on the band wagon! 

Saturday, 12 October 2013

The Market Opportunity for Descon Oxychem Limited (DOL)

Despite improving fundamentals and capital structure as noted in my posts here and here respectively, the market appears to be paying no heed to DOL's significant improvement in financial performance for the coming quarters. After rising significantly since the result was announced on 23-09-13, the stock has witnessed serious beating especially during the recent market turn  down.

So why did this happen? Maybe investors were just too cautious around that time and decided to get rid of their more volatile holdings. 

Going through checkered financial performance in the past, DOL has been just that, having been regularly depressed as well as volatile since most of its lifetime as given below. The fact that it has never come above even its par value speaks volumes about the risk investors perceive it with. 

So what awaits us in the future? In line with the previously referenced articles, as well as this one. Significant opportunity has arisen in the last few days:.

Forgive the quirkiness. 

Friday, 11 October 2013

As per the Annual Report of FY13, Descon Oxychem is a much better company now!

As disclosed in its annual financial statements for FY13, management of Descon Oxychem (DOL) has taken steps that will free up some serious cash flow for the next two years. In a nutshell, the company has obtained a grace period of two years for all its debt, including both the bank as well as subordinated debt. Moreover, the subordinated loan will now accrue interest for two years meaning that no finance costs will need to be paid for it.

All this means that the company will save Rs. 300 million each year for the next two years which comes to around Rs. 3 per share per year. Not bad given the stock is currently trading at Rs. 5.5.

While there would be no significant impact on earnings, improved cash flows could reduce short term borrowings and save finance costs. Possibility of dividends can also not be ruled out.  

Now why did the management do this?  The company is in excellent financial shape especially as per the June quarter result. Peroxide prices are at an all time high and will stay high for the September quarter implying that the quarter result will be good.

Maybe they just wanted to be safe given the dip in peroxide prices experienced two years ago.
Fair values are fair values and people rarely take them seriously. However, if they have anything worth, the whole debt restructuring exercise has had a fantastic impact on company valuation. The cumulative shifting of Rs. 600 million in free cash flows two years forward has increased the fair value of the company to Rs. 15, giving us an upside of almost 200% given current levels.

Given the intermediate for the stock appears to be good as per business recorder, peroxide prices are still holding, which implies a good result for September quarter. 

So Descon Oxychem. Lao Maal!

Thursday, 10 October 2013

An EPS Calculator for Engro - With Assumptions!

Ok last time I published an EPS calculator for Engro Fertilizers that spelled the impact of various factors like urea prices, gas supply situation, gas prices and so on, on EPS. However, as a friend noted , it would make much more sense if some assumptions could be incorporated. This would serve to make the model more credible.

 So here are some of the assumptions underlying the model.

  •  Gas consumption metrics are very important for the model. So I list em here.

  • Finance Costs, Depreciation, Salaries part of the COGS, have been assumed as same for last quarter. 
  • Selling costs have been taken as a proportion of revenue. The proportion being same as for the first half. Admin costs are pretty much constant. 
  • Packaging Price per bag is Rs. 25.
  • Sales Tax rate 17%.
  • Income Tax rate at 35% and all that jazz.
Rest is pretty much common knowledge I think. I hope I have not given away the model. :P

Wednesday, 9 October 2013

Engro Laya Rupya!

There seems to be some gaming at play as far the IPO of Engro Fertilizers is concerned. It appears that the stakeholders, that is government, banks and Engro, have all come to an agreement of sorts to supply Engro with some gas for some, so that it can generate some cash, pay of the banks, make some Urea, save government imports, and so on. So in the end, Banks bhi khush, Engro bhi khush, or government bhi khush.

Cash Coming In

Now, is probably the best time to hold an Engro Fertilizers IPO. Engro will have received 4 months of continuous gas supply from the shutdown Guddu Power plant, pouring money, sorry prills through the 300 meter high prill tower. For the quarter ended Sep 30th, 2013 Engro Fertilizers is going to get EPS of Rs 1.2, moreover, the EPS is going to increase in the last quarter, as full gas supply for the quarter takes effect making full year EPS around Rs. 4.2 . Let us just make it Rs. 4.

Assuming a multiple of 8, we can thus conservatively assume an IPO price of Rs. 32 per share. Further assuming the company wants to sell a stake of 10%, that is 122 million shares, that shall give the company around Rs. 4 billion in cash.

Some More ...

Engro Fertilizers made around Rs. 3 billion in operating cash flows during the first half of 2013. Assuming the gas supply continues as is, it will make somewhat more than Rs. 6 billion more by the end of the year. Add to that the Rs. 7.5 billion it had as of 30th June 2013, and the Rs. 4 billion it will raise through the IPO, and further adding some money earned on the cash deposits, the company will have round about Rs. 18 billion by the end of 2013. This amount takes care of any finance costs paid during the half, but excludes any principal repayments.

Now the company has around Rs. 7.5 billion in current portion of long term debt as of June 30th, 2013. Assuming it pays half of that by December, it will have Rs. 14.5 billion remaining in its kitty. This is a significant amount and could be used to pay of a large part of the company’s existing debt, that would still stand at Rs. 60 billion as at December 31st, 2013, thus the paying off could get it down to Rs. 45 billion. 

Such deleveraging could significantly boost investor confidence.

So will the Guddu Gas Stop before 6 months?

I don’t think so. Guddu is one of the most inefficient plants in the country and already ran at low capacity. Moreover, it is under expansion and it makes all the sense in the world for the government to divert its gas it to Engro for urea production. Clearly, that is the best use of the gas for now. I have read that Guddu is currently in expansion phase which will not be completed at least the next six-nine months. So I don’t expect that to speed up or anything especially given its a government plant! Any inputs to this are Welcome!

Foreign investors are selling Engro like hot cakes. Buyers anyone? 

Sunday, 6 October 2013

An EPS Calculator for Engro Fertilizers, Engro Corp.

Being stock market participants, we are often concerned with what the EPS of a company is going to be. This question is important as it greatly impacts valuations, though naively. For some companies, it is easy to calculate due to relatively little variables involved. One such company is Engro Fertilizers, which produces a single product and has a single raw material. Still, gas prices, Urea Prices, Gas availability pose as some of the key risk factors for company profitability. In order to gauge their effects, I have created an EPS calculator for Engro Fertilizers. Obviously, this has a full fledged model working behind it, but I have provided the basic inputs/outputs for analysis. So play and rejoice! a fully working EPS calculator for Engro Fertilizers! Default values are set for current quarter's expectation.

Saturday, 28 September 2013

If you'd listended to me, You'd be a millionaire by Now!

Ok, I guess you'd need Rs. 850,000 to begin with.

Sitara Peroxide (SPL) has yielded a 17.5% return since I published my recommendation
six days ago. So if anyone had invested Rs. 851,000 in the stock at the time I published my recommendation, he'd indeed be a millionaire right now :P. The return is even more enticing given that the KSE 100 index has lost more than 5% of its value during the period. This means that the recommendations have acually beaten the market by around 22.5% during the six days ending today.

The story of Descon Oxychem (DOL), SPL's spiritual sister (spiritual since it has the same driving factors as SPL) is no different as it has yielded a similar return of 17.3% during the period.

The basis for the recommendation was simple. Increased peroxide prices would (the companies' product) result in increased gross margins. A constant cost base was also highlighted, as government changes gas prices only on a six monthly basis and the last change would not take place untill for the Septmebr quarter.

Moreover, as borrowed from a daily of SC securities, and credit duly given, decreasing finance costs in view of improved cash flows would further boost earnings.

Both the recommendations were correct and as it turned out, gross margin did increase for both the stocks and the finance costs decreased as well. Moreover, the EPS of especially DOL incerased significantly and the company recorded its highest EPS in 6 quarters.

The EPS chart along with the updated gross margin chart, which is the cornerstone of this analysis is presented below for illustration:

So whats next? My initial thesis was better still results for the September quarter due to even higher peroxide prices. The low finance costs theme should follow through as well driven by further improvement in cash flows. Gas price increase should have posed a risk for the stock since its the major raw material, but that risk has been nullified given the government's decision to deferr the same till November.

Any production and sales hiccups could however disrupt revenues and earnings potential, however if this serves as any consolation, sales and revenues have been relatively stable for the two companies given the historical trend.

Hence in view of further rise in peroxide prices, together with a calculated assumption of constant production and sales, I would still stick to my assertion of further improvement in financial performance for both the stocks for the quarter ended September 30th, 2013.

Monday, 23 September 2013


Buy Descon Oxychem (DOL) while it lasts! Its spiritual sister company, Sitara Peroxide had a good financial performance by predicted by me and has been on upper locks since last 2 days! However movement in DOL, while positive, has been minimal. I would suggest taking a position before the company announced the result soon!

Given the stock level is currently PKR 5.26, it represents a return of 30-50% even if just two upper locks occur! I would recommend to buy it for 6 month investment horizon.  

Sitara Peroxide FY13 Financial Result

Sitara Peroxide Announces Result

Ok Sitara Peroxide announced its result today. The company posted an EPS of Rs. 0.19 for the quarter. However, the EPS is not important as it was not part of the forecast. In my last post I had predicted an increase in gross margin based on increasing peroxide prices. The gross margin in fact did increase, up 4 percentage points month on month, to 26%. So this lends credence to the price-gross margin thesis and the same story should continue with increased effect for the September quarter . I guess Ill update the gross-margin, H2O2 Price graph for corroboration:

Not only does does this reinforce the idea of improved financial performance for next quarter, it also bodes well for Descon whose result will be announced on the 30th. It may be noted that SPL was on upper lock today and with Descon booking sizeable gains as well.

Saturday, 21 September 2013

Descon Oxychem and Sitara Peroxide - Improved Financials

Descon Oxychem and Sitara Peroxide - Improved Financials

My post concerns two companies in the hydrogen peroxide industry in Pakistan. Descon Oxychem Limited (DOL) and Sitara Peroxide Limited (SPL). Both of the companies produce hydrogen peroxide that is a chemical used for bleaching, paper making, etc. Not surprisingly, the gross profit margin of these two companies follows the local of hydrogen peroxide prices as illustrated through the below graph:

Source: Business Recorder, Company Reports

Notice the absence of gross margins from the last two quarters. This is because the results pertaining to these have not been announced as of yet. Hydrogen Peroxide prices have however increased substantially during the period. Standing at Rs. 56 per kg today as opposed to Rs.44 in March-13, showing an increase of 16%.

An improvement in gross profit margins appears to be in order for the two quarters, that is, June 13 and September 13. The same analysis could be extended to operating margin due to comparatively lower administration and selling costs.

The final idea lends credit to SC Securities which says that the companies will experience declining finance costs too due to improved cash flows and lower working capital finance requirements.

I would say that a decline of 50 bps points in interest rates during the period should also help in decreasing finance costs. 

Owing to improved gross margins and lower finance costs, improvement in financial performance of the two companies, DOL and SPL appears to be in order for the quarters ending June-13 and Sep-13 .

Monday, 26 August 2013

JSIL - Freeing up cash flows

JS Investments

A behemoth in the golden age of Asset Management, with PKR 30 billion plus in assets under management and a management fee of PKR 500 million a year, the company is yet to regain its past glory. Thanks to the global financial crisis (Pakistani style) it faced significant redemptions, shriveled in size, resulting in decreased AUMs that have yet to get back up. The company’s AUM don’t matter however and this is not the story. The investment portfolio is.

As we all know, for a company, the income from an investment portfolio takes three forms. Dividends, realized gains and unrealized gains. Only the realized gains and dividends pass through the income statement affecting the EPS while the largest component, which is the latter, goes directly into equity. Due to the latter, the unrealized gains for JSIL have balooned, and BVPS is almost 2x the MVPS and is PKR 16 per share. The company is trading at a pesky PKR 8 per share.

So what if the company has so much gains. It would not do us any good (for us) unless it realizes them and converts them to cash right?

Well as a matter of fact, it has been cashing in those gains albeit a little bit. For instance the dividend is already cash and the company liquefies its investments from time to time for the realized gains. So it does have a cash flow from its investments and has been having so since long. But what does it do with them? The following excerpt from the income statement of FY12 explains:

And a little more from the latest march q accounts:

And we see that debt has fallen from PKR 1,050 million to PKR 520 million during the same period in a gradual way. 

The company will continue to have cash coming in as before. However there will be no debt to pay off any more. The only question is, what will it be doing with the money? A dividend should be easy since only PKR 100 million are needed for a PKR 1 per share dividend (13% dividend yield) given the company earns around PKR 400 million from operations and investments per year and already has sizeable investment gains. ThusDPS can turn out to be even more than PKR 1.

So whats will the company do?

Will it invest in its own units? Will it give out a dividend? Will it invest in some other stocks? Will it build a casino? I would place my bet with the former. 

Saturday, 29 June 2013

ORIX LEASING 9 Month Results


At the risk of sounding rude, markets are naive. It is true they value companies at PEs. If a market has a PE of 8 and a stock has a PE of say 4, the stock would be a buy. They know they have a PE in mind, all they are waiting for is the earning. So they wait for the year to end, accounts to finalize and the result to come out. and whatever the earning comes out, the price suddenly rises until it is some multiple of that earning (in this case assumed as being 8). So anyone, who can get to know that earning in advance can make money by buying the stock when the earnings do not come out (or leak out) yet. And that is where the naivete of the market lies. The naivete of the market lies in it not knowing that many a time, the annual earnings can be found by multiplying they nine month earnings by 1.33333 (ok forgive the extra 3s). This is mostly true for under-covered stocks and will be my thesis for the forthcoming analysis and a concurrent BUY rating for ORIX Leasing.

Short Term Outlook:

In my last blog post some time back, I explained how good Orix leasing was good and all. That analysis was based on 3 month accounts. I went into hybernation mode for a while and when I woke up, and decided to reopen my blog, I discovered that 9 months results had come out. The stock had also moved somewhat, going up around 20% during the period. But the thing worth noticing most was that the stock had not moved as much as dictated by financial performance. The company has not only improved financially, but in fact seems to be on the  growth trajectory. The multiple for FY13E is significantly low, standing barely at 5. The dividend is expected at at least 2, resulting in a dividend yield of 11%. Moreover, given the annual result is announced and comes out expected, the buying frenzy (forgive the hyper-lative) will push the stock to around a multiple to at least 6? if not 7 or 8?, resulting in the stock going up to 24 to say the least. Hence there is a 40% upside on the stock as the annual result gets announced. Moreover, who knows where it could end up next (remember its a growing stock).

My last analysis was based on preliminary numbers (1Q accounts) and was pretty simplistic. I presented some numbers from the last 6 years and highlighted the improving trend. Then I extrapolated annual earnings from a single quarter, by multiplying it by 4 (yes it was pretty simmplistic) and arrived at the figure of 3.2 and said that it could go higher. The stock was at 15 at the time so I said well its good buy bla bla. But there was at least some substance to my argument. While annualized earning was coming around 3.2, the earning now appears to be 3.9, based on 9Q numbers, and it might as well be 4!

Long Term Outlook:

So the stock is a good buy in the short term with sizeable dividend yield and capital gains potential. So whats in it for the long term? Or in other words, what happens when the stock achieves a level of Rs. 24 (If it does, hopefully). Well there are a number of things that make it a buy in the long term (yes guys it is a gold mine. Buy it while you can! - ok not).

Well, the first and foremost reason has already been highlighted. The business is on the upswing generally and I have already emphasized this point in my last post. Its a highly systematic stock. It fundamentals move greatly with the shape of the economy. Economy goes down, NPLs rise, disbursements slow, revenue decreases, and finally, the EPS gets affected. Here, I'll post the 6 year financials again for review:

As you can see from the above, disbursements, earnings, lease losses, dividends were all pretty badly effected by the local financial crisis of 2008. However, a review of latter numbers reveals that they have been gradually improving since then.

So we have data up till 2012. So what will 2013 look like, given some extrapolation (remember 1.333)? Lets do the math here:

Improvement in almost every quarter.

Asset Liability Risk:
Asset liability risk is probably one of the greatest risks a financial institution faces. Rising deposit costs coupled with falling revenues can prove disastrous. This holds true for the leasing industry as well and was a case in point during the FY08 financial crisis. The increased interest rates due to high inflation coupled with IMF demands put the entire industry in jeopardy. investments banks, leasers, all faced the music. So what does Orix have that can safeguard it from the future. Analysis of liabilities reveals the company has significantly high dollar borrowing with extremely low cost at L+1 etc. That is almost free! So earnings 12% and expensing 2% is like a walk in the park.

Finally, I would copy one statement here from the FS that I always pay attention to. and there is a reason for it. It is because I believe the directors report to be quite honest. Moreover, when the statement is written, 1-1.5 months have already lapsed into the quarter. The the statement is not entirely forward looking and is based on some empiricism. So here is the statement:

So FY13 is going to be a good year for ORIX LEASING.

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