Azeems Private limited

CA Reference: JSBL/KHI/WB/2017/0108

Credit Memorandum
Borrower Name & Constitution Originating Unit Date
Azeems Private Limited Wholesale Banking Unit – South 24-July-2017
Account Details Registration Number & Date Credit Grade
975164 (Opened date: 16-Jun-2017) K-404/6939 (15-May-1982) 2B

PURPOSE
The purpose of the credit proposal is seek approval for fresh facility (Running Finance) aggregating to PKR 15(M)
favouring Azeems Private limited as per the CA attached.

EXECUTIVE SUMMARY
Azeems Private Limited (APL) is a liaison/representative office in Pakistan of a foreign manufacturer in the name of
Cellulose Group FZC located in the Hamriyah Free Zone, Sharjah, UAE. The group also comprises of a sole
proprietorship entity of Mr. Naveed Vakil under the name of Azeem Associates. APL is primarily engaged in the
trading activity of paper and board for the printing/packaging industry. In addition, the Company also deals in
imported wood pulp, processes bleached/unbleached kraft and dissolved pulp used for the paper/board, tissue
manufacturing, excipients and the filtration industry amongst others.

The Company is owned and managed by Mr. Umer Vakil (S/o Mr. Nadeem Vakil) as its CEO (67% share) and Mrs.
Badar Vakil (W/o Mr. Fazli Vakil) as the Director (33% share). The Company’s topline is PKR 139(M) as at FYE 2016, up
10% from the previous year. Operating Income is reported at PKR 18.149(M) with resultant Net Profit of PKR
16.44(M). The Company’s Total Equity is reported as PKR 149(M) as at FYE 2016, this is inclusive of Surplus on
revaluation of Fixed Asserts undertaken in FY 2016 accounting for PKR 55(M) of the Total Equity.

The facility proposed shall be utilized for the Working Capital requirements of the Company; initially, part of the
facility (upto PKR 9M) shall be used as direct payment on behalf of Azeem Associates, to United Bank Limited (UBL)
for settlement of their exposure and subsequent release/transfer of security (Self-owned/occupied 1,000 sq. yard.
residential property bearing House No. 79, Khayaban-e-Badban, Phase 5, D.H.A, Karachi – MV of PKR 130.415M), to
JSBL.

INDUSTRY ANALYSIS
Pulp and Paper Industry of Pakistan is not among the prime industries of the country and is in developing stage.
Consumption of Paper in Pakistan is in far excess of the domestic capacity therefore, the local demand of some types
of papers is met through imports.

Over a period of time domestic industry has attained capacities and capabilities to produce all major Paper &
Paperboard products leaving small room for imports. However, domestic demand of some specialized papers,
including coated art paper / card and newsprint, among others, is met through imports. More than 70% of mills are
located in Punjab province, 20% are in Sindh province and 10% are in Khyber Pakhunkhwa province.

While there are several sources of raw materials, for wood based, coniferous pine and eucalyptus is in short supply
in Pakistan. The soft wood forests in the country exist in extreme northern hills of North West Frontier province and
Azad Kashmir which are mostly inaccessible due to lack of suitable communication facilities. As we know that Forest
plantations are the major assets of the pulp and paper industry. Unfortunately, forests in Pakistan cover constitute
only 4.8% of total Land against the international benchmark of 25%.

Paper Industry is broadly classified in three major categories i.e. Packaging Board, Container Board and Writing and
Printing Papers. Although the conditions of Paper Manufacturing are not encouraging at the moments in Pakistan;
other segments within this industry are showing good progress. As a whole Future Outlook of the Paper industry in
Pakistan seems bright as lots of opportunities are available in the wake of rising demand for Paper and allied
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 Azeems Private limited
CA Reference: JSBL/KHI/WB/2017/0108
products. The demand for the various categories of paper and paper board has shown a steady increase over the
years and is expected to continue increasing as population increases, literacy improves and economic growth takes
place. The shortage so far has been met through imports.

GROUP INFORMATION
The informal group comprises of the following listed entities that are owned/managed by immediate family
members;

1. Azeems Private Limited

The Company was established in 1982 and is currently managed by its CEO, Mr. Umer Vakil (S/o Mr. Nadeem Vakil)
along with his paternal grandmother, Mrs. Badar Vakil (W/o Mr. Fazli Vakil). The Company is located at House No.
79, Khayaban-e-Badban, Phase 5, Defence Housing Authority, Karachi, Pakistan. Shareholding details are as under;

Name Designation Shareholding

Mr. Umer Vakil (S/o Mr. Nadeem Vakil) C.E.O. 67%
Mrs. Badar Vakil (W/o Mr. Fazli Vakil Director 33%

2. Azeem Associates
A Sole-Proprietorship concern of Mr. Nadeem Vakil (S/o Mr. Fazli Vakil)

Name Designation Shareholding

Mr. Nadeem Vakil (S/o Mr. Fazli Vakil) Proprietor 100%

3. Cellulose Group FZC

The Company is a LLC based out of Sharjah, U.A.E. that was incorporated in 2003. Shareholding details are as under;

Name Designation Shareholding

Mr. Nadeem Vakil (S/o Mr. Fazli Vakil) C.E.O. 50%
Mrs. Shazdeh (W/o Mr. Nadeem Vakil) Director 33%

COMPANY BACKGROUND AND BUSINESS UPDATE

The Company was incorporated in 1982 as an independent trading arm of Cellulose Group FZC that in conjunction
deal with paper, paper board and cellulose/wood pulp based products.

MANAGEMENT AND OWNERSHIP PROFILE

The management of the Company is with immediate family members, the incumbent CEO is Mr. Umer Vakil who
took over the position from his father Mr. Nadeem Vakil. Mrs. Badar Vakil is the paternal grandmother of Mr. Umer
Vakil and shares the management responsibility. The family has extensive management experience in the industry
they operate in and have led the Company towards sustained profitability.

Management
Name Designation Shareholding
Mr. Umer Vakil (S/o Mr. Nadeem Vakil) C.E.O. 67%
Mrs. Badar Vakil (W/o Mr. Fazli Vakil Director 33%
Total 100%

FACILITY AND SECURITY STRUCTURE

Azeems Private Limited (APL) requires a Running Finance facility for its expected Working Capital requirements; the
facility requested is PKR 15(M). The primary security against the exposure will be 1 st Pari Passu charge over the
Current Assets of the Company amounting to PKR 20(M) and third party mortgage over immovable property valued
at ~PKR 50(M) - both with 25% margin. Formal valuation of the property is in process.

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CA Reference: JSBL/KHI/WB/2017/0108

The Company does Nil borrowing from other banks; however, there is exposure under Azeem Associates - a Sole-
Proprietorship concern of Mr. Nadeem Vakil (S/o Mr. Fazli Vakil) at UBL that the Compnay intends to settle through
the proposed facility in part. The exposure at UBL is around PKR 9(M), this is proposed to be settled directly in a post
approval scenario and the resultant security held at UBL shall be offered to JSBL as replacement security for APL.

CREDIT POLICY EXCEPTIONS

None

FINANCIAL ANALYSIS
The financial analysis is based on the financial period ending June 30, 2015-16 and the interim financials for the
period march 31, 2017 as audited by Syed Hasan & Co.

PKR ‘000 FYE 2015 FYE 2016 FYE 2017 Variance

Sales Turnover 112.346 126.935 139.628 12.693
CGS 94.215 104.325 113.595 9.270
G.P. Margin (%) 16.14 17.81 18.64 0.830
Other Income - - - -
Financial Charges 0.028 0.035 0.040 0.005
Net Profit 11.225 13.267 16.444 3.177
Total Equity 64.394 132.661 149.106 16.445
Operating Cash Flows 3.821 1.318 2.312 0.994
Current Ratio 1.23 1.44 1.59 0.150
Leverage Ratio - - - -
Interest Coverage 467.14 438.39 462.62 24.230
Net Cash Cycle 3 -5 11 6
EBITDA Margin (%) 11.75 12.11 13.33 1.220

Income and profitability

- Sales turnover increased by 10% for the 9 month period in comparison to FYE 2016 resulting from increased
quantum of trading business.
- The G.P. margin improved slightly from 17.81% to 18.64% sue to improved costing and internal efficiency
controls and the N.P. margins also improved from 10.45% in FYE 2016 to 11.78% reported for 9M, FY 17.
- The Company has not reported any other non-operating income; the financial charges are nominal at PKR
35,060/- for FYE 2016 and 40,230/- for 9M FY 2017.

Balance sheet
- Total Assets reported are PKR 219.674M for 9M FY 2017 (FYE 2016 was PKR 189.501M). Current Assets
comprise of stocks reported at PKR 24.615M (FYE 2016: PKR 20.635M) whereas the largest component of CA
was Loans and Advances reported to the extent of PKR 58M 9M FY 2017 (FYE 2016:42.915M)
- The Company does not have any ST/LT debt. Trade creditor liability was reported at PKR 33.943M in 9M FY
2017 (FYE 2016: PKR 28.635M)
- Equity composition includes surplus on revaluation of fixed assets amounting to PKR 55M taken in FYE 2016
with the major component being un-appropriated profits of PKR 93.256M for 9M FY 2017 (FYE 2016:
76.811M)

Leverage
- Current ratio is reported at 1.59x for 9M FY 2017 (FYE 2016: 1.44x) with the Quick ratio reported at 1.24x for
9M FY 2017 (FYE 2016: 1.07x) that signifies adequate liquidity.
- DSCR was reported 462.62, as there is no borrowing the leverage ratios are nil.
- Interest coverage is reported at 462.62 for 9M FY 2017

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Turnover efficiency
- Cash conversion cycle is 11 days for 9M FY 2017 (FYE 2016:-5)
- Debtor days increased from 23 days in FYE 2016 to 34 for 9M FY 2017 days while Creditor days improved
from 99 days in FYE 2016 to 81 days reported for 9M FY 2017.
- Inventory turnover improved slightly from 5.06 to 4.61 reported for 9M FY 2017.

Cash flows
- Net operating cash flows increased to 2.312M in 9M FY 2017 from PKR 1.318M in FYE 2016.
- Changes in Working capital amount to PKR 14.553M for period 9M FY 2017.

INTERIM MANAGEMENT ACCOUNTS AND PROJECTIONS

The full year management accounts are under preparation and not available as at date.

ASSESSMENT OF KEY INDUSTRY RISK AND CRITICAL SUCCESS FACTORS

[Summarize using use Porters 5 forces and Scott’s 4 forces model as below, start from industry and then relate these
to the business]

Porters 5 forces
Threat of New Entrants [Low] Threat of Substitutes [Low]
- Pakistan not being a major market has low - No substitute
foreign investor interest. - Technology barriers
- Imported finished product in cost effective. - Lack of viable environment friendly alternative.
- Existing established players
Rivalry amongst competitors [High]
- Competitive industry with several players
- Imports providing costing advantages
Bargaining Power of Suppliers [Low] Bargaining Power of Buyers [Medium]
- Competitive market - Inherent sourcing, warehousing costs
- Various supply sources available - Not many entities are vertically integrated.

Scott’s additional 4 forces

Stage in life cycle [Low] Lever of innovation [High]
- Growing industry - Several variants being produced
Government and industry policy risk [Medium] Macroeconomic context [Medium]
- Bilateral trade with significant producers - Demand of the product

Overall industry risks and critical success factors

None significant to mention other than sustainable sourcing; no viable alternative present at this time.

BUSINESS RISK ANALYSIS AND MITIGANTS

Key business risks identified are mentioned below;

Risk Type Mitigants

Management Succession Incumbent CEO is the son of ex. CEO hence succession risk has been
minimized for the family run business.
Supplier Concentration suppliers The Company is on very good terms with international suppliers
with addition of new suppliers being undertaken
Regulatory Import restrictions/duties Mitigated through product diversification

CIB reports
CIB reports attached reflect clean instances of reporting.

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 Azeems Private limited
CA Reference: JSBL/KHI/WB/2017/0108
NAB
No adverse reporting

Political affiliation
Non-PEP

RECOMMENDATION
Based on the above rationale and merits of the case, RF facility is recommended for approval.

Submitted By: Reviewed By:

[Sign & date] [Sign & date]

__________________ __________________
Relationship Manager Team Leader

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