Karachi March 01, 2022: In a notice filed to Pakistan stock exchange TRG Pakistan has reported loss of PKR11.7 billion in December quarter. Company booked PKR16.5 billion loss on its investment in associates. TRG income statement is primarily driven by the changes in value of our share in TRGIL. Our share of the net loss in equity accounted investee (i.e. TRGIL) was Rupees 14.8 billion. Out of this loss from associate, Rupees 6.8 billion was on account of a mark-to-market loss booked on IBEX shares held by TRGIL. IBEX’s share price on NASDAQ declined by almost 34% during the period under review.
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TRG reported significant loss of PKR 23.11 in second quarter: PSX
The remaining loss was primarily on account of the redemption of certain preference shares in December 2021. These preference shares were originally classified as debt owed to their holders at the amount of their original investment, as the investors had the ability to have their preference shares purchased back at the higher of the original issue price or their pro-rated share of the underlying net assets, including their share of a preference amount.
As the redemption value of these preference shares was more than the original issue price because of the high value of the underlying monetization, the difference between the redemption amount and the original issue price was reflected as a one-time finance charge.
The Company recognized interest income of Rupees 7.1 million in its income statement, whereas it incurred expenses of Rupees 16.8 million. Deferred tax amounting to Rupees 2.2 billion was reversed during the period. Overall, the Company posted net loss of Rupees 12.6 billion for the period ended December 31, 2021 as a result of these factors.
The most significant item on our balance sheet is the value of the Company’s share in TRGIL, our sole operating asset. As of December 31, 2021, the value of our share in TRGIL is Rupees 40.2 billion, representing a decrease of Rupees 9.4 billion compared to Rupees 49.6 billion on June 30, 2021.
This decrease is primarily related to two drivers: (1) a decrease in the share price of IBEX between June 30, 2021 and December 31, 2021 and (2) a partial redemption of certain TRGIL shareholders in December 2021 that resulted in a finance charge.
In addition to the Company’s stake in TRGIL, it also has other assets of Rupees 0.1 billion and liabilities of Rupees 6.8 billion (primarily relating to deferred taxes) resulting in net assets of Rupees 33.5 billion.
The first half of FY22 has been a period of consolidation for the Company. We successfully completed the sale of our e-TeleQuote business in July 2021. The Company’s pro-rated share of the proceeds was approximately Rs. 21 billion, which makes this one of our most profitable investments since inception. A significant portion of these proceeds are in the process of being returned to the Company’s shareholders in an efficient manner.
Our portfolio company Ibex Limited (IBEX) has been investing in additional capacity in response to additional demand for its services. IBEX has been successful in transforming its business over the last 5 years, with a shift towards high-growth, emerging technology and new economy sectors, resulting in increased client diversification and higher growth from new brands that has more than offset the decline from mature, legacy top 3 clients. We expect IBEX stock price on NASDAQ to reflect this growth, as the company delivers on performance in 2H FY22.
Ibex’s stock price has already shown material recovery after the announcement of better-than-expected fiscal 2Q results. Our portfolio company that provides Artificial Intelligence Enterprise Software (AI Software Business) has had historical revenue growth averaging over 50% during the last 8 years. In recent years, this growth has been lumpy with flat revenue during FY20 followed by revenue growth of nearly 300% during FY21. In light of recent events, the plan for FY22 is to consolidate the FY21 growth and target additional enterprise deals which would result in further growth in FY23.
IBEX revenues for the six months ended December 31, 2021 were $240.8 million compared to $226.0 million for the same period last year, whereas, the adjusted EBITDA* and Net Income during this period were $29.3 million and $11.5 million compared to $33.7 million and $(0.9) million, respectively, for the same period last year.
The strong topline growth was a result of revenue generated from newer clients as IBEX continued to diversify its client base. The adjusted EBITDA was essentially flat year over year primarily due to costs associated with ramping new business, which includes agent training and investments in overhead. We expect the overall margins to improve in the second half of the fiscal year as the ramp costs stabilize.
Revenues at our AI Software Business during 1H FY22 grew slightly compared to corresponding revenues in 1H FY21. During 2H FY21, the AI Software Business significantly increased its cost structure to prepare for future growth, resulting in a substantial decline in adjusted EBITDA.
The AI Software Business is now in the process of rationalizing its cost base to restore the company to breakeven adjusted EBITDA while retaining its growth focus. During the remainder of FY22, the AI Software Business is seeking to consolidate its recent revenue growth and target the resumption of its growth trajectory from FY23 onwards.revenue growth and target the resumption of its growth trajectory from FY23 onwards.
