WITH Rs560m in assets and a market capitalisation of Rs827m, Crescent Star Insurance Company Ltd has long been dismissed by investors as a mid-tier entity.

But it has managed to forge its way into the list of the country’s mainstream insurance companies over the last couple of years. And a change in management has breathed new life into the firm.

As a result of restructuring, CSIL’s majority shareholding now rests with a group of individual sponsors. Of the 62m shares, its associated undertakings, Weavers Pakistan (Pvt) Ltd is the

biggest shareholder with 26.9m shares (43.3pc stake), followed by Elahi Noor Enterprises (Pvt) Ltd with 11.7m shares (18.9pc). And around 607 common shareholders own 18m shares, which suggests that the company maintains a comfortable free-float of 35pc.

“After restructuring in 2014, the company is finally compliant and has met its capital requirements, which were partially made through the right shares issue of 412.5pc at a 40pc discount to the par value of Rs10,” wrote Arif Habib Limited (AHL) analysts in a report.

For the quarter ending March 31 (1QCY15), the company’s net premium revenues grew by a huge 454pc to Rs86m from Rs16m in the same quarter last year as a result of increased insurance coverage from the health and auto sectors. The company jumped out of the red of Rs14.1m in 1QCY14 to a profit of Rs10.3m in 1QCY15.

Apart from the growth in net premium, this was attributed to the introduction of various new products as well: CSIL underwrote around 5,000-10,000 green and yellow cabs in Lahore, which is expected to add to its revenues.

Last year, the company invested Rs75m — or 87pc of its investment portfolio — in Pakistan Investment Bonds (PIBs), which are slated to mature in 2017. Its credit rating was also increased from BBB+ to A- by Pacra, indicating improved abilities to meet insurance obligations. “A higher rating should lead to easier access to credit lines from banks at cheaper rates,” say sector analysts.

The company plans to make an initial investment of Rs70m in its wholly owned subsidiary Crescent Star Foods, which is set to bring the Texas-based fried chicken chain Golden Chick to Pakistan

According to note 14 in the company’s first quarter accounts, its property investments stood at a book value of Rs184m with an estimated fair value of Rs419m. If sold, the property has the potential to generate a potential gain of Rs229m or 127pc. “The profit from the sale of properties can prove to be a major source of financing for future projects,” point out AHL analysts.

And the company has some ambitious projects in the pipeline. It is poised to venture into businesses like food-franchising, tracking and steel. It decided to make a foray into the tracker business through an investment of Rs25m in its wholly owned subsidiary Crescent Star Tracker (Private) Ltd. This particular plan is to start from October and completed by September 2016.

Secondly, it plans to make an initial investment of Rs70m in its wholly owned subsidiary Crescent Star Foods (CSF), which is set to bring the Texas-based fried chicken chain Golden Chick to Pakistan. The initial plan is to open three outlets, with a target of 30 outlets by the next 10 years. The venture would offer both roast chicken (chargha) as well as fried chicken, unlike other brands that generally serve only the fried variety.

And finally, the company plans to make its highest investment of up to Rs450m in Dost Steel Ltd (DSL), with a holding of 37.4pc. The project is expected to become commercially viable by March 2016.

So do the company’s forays into food-franchising, tracking and steel suggest that it is set to shun the insurance business?

“Definitely no,” Naim Anwar, CSIL’s CEO and MD, told Dawn. He emphasised that insurance will continue to be the company’s core business, and that plans are afoot for its rapid growth.

“We are diversifying into other businesses to put the available cash to the most profitable use,” he said. He estimated that the investment in each of the new ventures would yield solid returns of 35-40pc. Investment in such high-yield businesses makes sense instead of following the beaten path of parking money in banks, National Savings Schemes or in speculative assets like stocks.

In the insurance segment, motor insurance products have the biggest share in the company’s business of 56pc, followed by accident and health benefit plans with 29pc.

Naim said the underwriting results for 1QCY15 were encouraging, and the company had posted a profit it had started to benefit from ‘unearned premiums maturing’. He claimed that as more and more banks enlist the company on their panel, CSIL is also expecting growth in its fire/marine and engineering business.

“The expected growth during 2015 will benefit the results of 2016, as the unearned premium growth will mature. The three-year cycle of earned premium growth will reflect from the 2016 results.”

And while the sizeable accumulated loss of Rs84m that sits on the company’s balance sheet perhaps precludes the possibility of an imminent resumption in dividend payouts, CSIL’s fresh new face has given confidence to the investors with regards to future prospects. This is partly manifested in the steep rise in its stock price. The CSIL stock had closed last Wednesday at Rs17.23 a share.

Published in Dawn, Economic & Business ,July 21st, 2015

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