Inbox Business Technologies Limited (‘Inbox’ or ‘the Company’) is a public unlisted Company, incorporated in 2001. It was initially registered as a Private Limited Company, but its status was later changed to public unlisted effective from March 2017.

In 2001, Inbox started as a local assembler of computers in Pakistan by Mr. Ghias Khan along with his friends, Mr. M Nasir and Mr. Mohd. Ali. In 2005, 51% stake was acquired through companies with common directorship and ownership of Hussain Dawood & family. Since then, Inbox is associated with the Dawood Group, one of the largest conglomerates in Pakistan. The Company transitioned from assemblers to system integrators in 2007. In 2009, the Company started providing managed services and then introduced digital services in 2014, offering customized processes, managed services infrastructure, and technology alliances. At the end of 2019, 100% of the stake was acquired by Mr. Hussain Dawood & family.

The primary business activity of the Company is to deliver essential IT services, including IT service management, IT operations management, remote management, and digital content management. Additionally, the Company offers comprehensive digital solutions ranging from cybersecurity to asset management. The Company operates two Security Operating Centers located in Islamabad and Karachi. Inbox collaborates with federal, provincial, and city governments to establish smart governance initiatives, encompassing Internet of Things (IoT), urban security, and intelligent transportation systems. Inbox has established a subsidiary in the Kingdom of Saudi Arabia (KSA) named Inbox Technologies Arabia. This subsidiary will extend these services, including Governance, Risk, and Compliance (GRC), to clients in KSA.

Approximately 99.9% of the company’s shares are held by Dawood Investments Pvt. Limited (formerly known as Patek Pvt. Limited), a holding company with investments in the technology sector. Dawood Investments Pvt. Limited is part of the Dawood Hercules Group, which is associated with the Dawood Family and their associates. The Dawood Hercules Group has diversified investments across various sectors, including food, fertilizers, petrochemicals, energy, information technology, terminal services, and telecommunication infrastructure.

The company’s ownership is notably stable, supported by the sturdy and diversified presence of its sponsoring group, Dawood Investments (Pvt) Ltd. This strong backing spans multiple economic sectors, including food, fertilizers, petrochemicals, energy, information technology, terminal services, and telecommunication infrastructure. Such a well-established foundation ensures the company’s continued growth and stability.

The Dawood Group is a well-established conglomerate with over three generations of expertise in both commercial and social enterprises. The Group has diversified interests across various economic sectors, leveraging its strong affiliations and technical prowess through international joint ventures. This strategic approach has significantly contributed to the success and growth of the companies within the Group.

The company’s financial strength is deeply rooted in the solid foundation provided by its sponsoring group, Dawood Investments Pvt. Limited. With significant interests in technology-based businesses, this backing ensures a stable and robust platform for the company’s ongoing growth and financial stability.

The Board of Directors consists of five members, including the Chairman, with all members being Non-Executive Directors except for Mr. Mohsin Ali, the CEO of Inbox Business Technologies Limited.

Mr. Mohammad Shamoon Chaudry, Chairman of the Board and CEO of Dawood Hercules, brings 27 years of experience and has been a board member since March 25, 2021. He holds an MSc in Finance from London Business School and an MBA in Finance from LUMS, and is a member of the Human Resource & Remuneration Committee (HR&RC). Mr. Ali, with a Bachelor’s in Business Administration and over 20 years of experience, joined the board on October 20, 2023. Mr. Sikandar Hazir, Head of HR at Dawood Group, has 16 years of experience, joined the board on April 27, 2022, holds a BE in ICT and an MBA from NUST, Islamabad, and serves as the Chairman of the HR&RC. Mr. Shafiq Ahmed, CEO of Dawood Investments (Pvt) Ltd, with 27 years of experience, has been on the board since July 7, 2020, is a Chartered Accountant from ICAP, holds a law degree from Karachi University, and chairs the Board Audit Committee (BAC). Ms. Nazia Hasan, CFO of Dawood Lawrencepur Limited & TGL, with 15 years of experience, joined the board on January 26, 2024, holds an MBA in Finance from IBA, and is a member of the BAC. The board’s composition, with its blend of extensive experience and diverse expertise, ensures strong governance and strategic oversight.

During 9MCY24, the Board of Directors held two meetings, both of which saw full attendance from all members. These meetings primarily focused on discussing annual audit affairs. An additional meeting to address corporate affairs is scheduled for December 2024. The full participation in these meetings underscores the board’s commitment to effective governance and oversight. The Human Resource & Remuneration Committee (HR&RC) and Board Audit Committee (BAC) , further enhance the governance framework for Inbox, ensuring comprehensive oversight and strategic alignment.

For the year ended December 2023, the company’s external auditors, Mazars Chartered Accountants, have issued an unqualified opinion on the financial statements. This reflects a high level of financial transparency and accuracy in the company’s reporting. Mazars is a QCR-rated firm and is listed in the State Bank of Pakistan’s category ‘C’ panel of auditors, further underscoring the credibility and reliability of the financial audit. This year Company has appointed 'Grant Thornton' as Auditor for year 2024. Its an 'A' rated firm.

The company’s organizational structure is designed with clear reporting lines, divided into project delivery, finance, HR, legal, technical team and solution sales . Each function is overseen by its respective director or department head, who reports directly to the CEO. Notably, the Head of the Internal Audit department has a dual reporting line: functionally to the Board of Directors’ Audit Committee and administratively to the CEO. This structure ensures effective oversight and accountability across all areas of the company.

The company’s management team is composed of highly experienced and qualified professionals. Leading the team is Mr. Mohsin Ali, the Chief Executive Officer, who brings over 20 years of experience in the technology industry and has been with Inbox since 2004. Mr. Kamran Hanif, the Chief Financial Officer, joined the company in August 2020 and also serves as the CFO for Dawood Hercules. Their extensive expertise and leadership are pivotal in driving the company’s strategic vision and operational excellence.

The company has established a management committee composed of senior executives. This committee regularly reviews and discusses policies, procedures, and key performance indicators to ensure effective oversight and continuous improvement. Additionally, monthly reports detailing the status of various projects are shared with the Board of Directors, facilitating transparent communication and informed decision-making.

The Company has strategically implemented Oracle R-12 as its Enterprise Resource Planning (ERP) system. This advanced solution ensures seamless integration and optimization of all business processes, driving operational efficiency and supporting informed decision-making across the organization.

Oversight and effective management are ensured through the internal audit department, which diligently monitors the company’s various functions and internal controls. This department reports directly to the Board’s Audit Committee, providing an additional layer of accountability. The department is led by Mr. Amjad Ali, he is chartered accountant from ICAP. He is with Dawood Group since 2010. He is currently performing role of Head of Internal Audit in Dawood Hercules, Reon Energy and Tenaga Generasi.

The global tech industry’s resilience, growing from $8.85 trillion in 2023 to $9.63 trillion in 2024 at a CAGR of 8.8%, presents broad opportunities but underscores significant risk for markets like Pakistan facing economic constraints. Locally, startups raised around $945 million since 2015; however, funding in 1QCY24 dipped to just $8 million across three deals, reflecting the sector’s vulnerability to economic headwinds. Export growth reached PKR ~259 billion in 9MFY24, but gains were primarily due to PKR devaluation, with USD growth stagnating. Margins, traditionally ~30%, have compressed due to high inflation, policy rates, and reduced tax incentives, pushing gross and net margins down to 25% and 13%, respectively, as of 6MFY24. Despite sector support from government initiatives like IT parks, reliance on policy stability amid economic pressures could limit growth, challenging profitability and operational efficiency. In assessing the entity’s exposure within this environment, these industry risks highlight the potential for margin erosion, cost escalation, and heightened dependence on favorable currency movements to support export earnings. Given these factors, vigilance is warranted in monitoring liquidity, cost control measures, and the impact of regulatory shifts on profitability and capital adequacy, as these will be critical in mitigating business risk over the forthcoming period.

Based on the total revenue generated by the tech industry, Inbox commands a market share of slightly over 1%. This positioning reflects the company’s presence and competitive stance within the broader technology sector. While this market share indicates a modest footprint, it also highlights potential growth opportunities. By leveraging its diverse revenue streams and strategic initiatives, Inbox is well-positioned to enhance its market share and strengthen its relative position in the industry.

The company has strategically diversified its revenue streams across five key segments, each contributing to its financial stability. Enterprise Management Services (EMS), which includes customer support, warranty, maintenance services, and remote assistance, contributed approximately 9.5% to the total revenue, amounting to PKR 345 million in 9MCY24, maintaining consistency with the previous year’s PKR 353 million. Key clients in this segment include PTCL, Coca Cola Pakistan, Standard Chartered Bank, and DELL. Digital Security and Intelligence (DSI), encompassing Web Management Services for cybersecurity, did not generate revenue in this period due to the completion of existing contracts. Major clients here include Telecom Industry. The Citizen Services & Customer Experience (CSX) segment emerged as the major revenue driver, accounting for around 80.24% of the total revenue with PKR 2,942 million, a significant rise from PKR 1,525 million (~62%) in 9MCY23. This segment serves clients such as the Punjab Mass Transit Authority and the Excise, Taxation and Narcotics Control Departments of Sindh and Punjab. Cloud & Converged Systems Integration (CSI), offering scalable enterprise solutions and robust cybersecurity measures, contributed 3.21% with PKR 117 million. The International Business segment, primarily from operations in KSA, added 7.14% to the total revenue, amounting to USD 400,000.International business is in initial stage, so revenue size is small, and for delivery of International projects, Inbox is sub-contracting with partners. The establishment of Inbox Technologies Arabia in KSA marks a strategic expansion in the international market. The company’s heavy reliance on the CSX segment, which contributes over 80% of total revenue, poses a concentration risk. Any adverse changes in government policies or budget allocations could significantly impact this segment. The stability in EMS revenue is a positive indicator, supported by a diverse client base including major corporations like PTCL and Coca Cola Pakistan. However, the lack of revenue from the DSI segment this period highlights potential volatility and dependency on contract renewals. The CSI segment, while contributing a smaller portion of revenue, offers growth potential through its focus on scalable solutions and cybersecurity, which are increasingly critical in today’s digital landscape. The international business, particularly in KSA, shows promise with strategic expansion through Inbox Arabia, but also introduces geopolitical and operational risks associated with international markets. Overall, while the company demonstrates strong revenue generation and client diversification, the concentration in the CSX segment and dependency on government contracts warrant close monitoring. Ensuring stable contract renewals in DSI and international segments will be crucial for mitigating business risks.

The company has demonstrated a marginal improvement in its financial margins this year. The gross profit margin has increased to 18.4% during 9MCY24, compared to 18% in 9MCY23. This positive trend is mirrored in the operating margin, which rose to 10.1% from 9.5% over the same period. Consequently, the net margin has also followed this upward trajectory. This enhancement in margins can be attributed to the company’s strategic management of inflationary pressures and effective handling of exchange rate volatility, particularly in procurement processes involving imported hardware. By strategically sourcing essential hardware imports, the company has successfully mitigated the impact of rising material costs, thereby contributing positively to overall margin improvement. From a credit risk perspective, these improvements reflect the company’s robust operational strategies and its ability to navigate economic challenges effectively. The proactive approach in managing procurement costs and exchange rate fluctuations underscores the company’s resilience and strategic foresight, which are critical factors in maintaining a strong credit profile.

The company is strategically prioritizing its export market, having successfully booked and delivered two contracts, with additional projects currently in the pipeline. Recognizing the rising demand for skilled resources, the company has also ventured into resource recruiting to bolster its talent pool. Importantly, the company has no plans to increase its debt exposure in the long term, reflecting a prudent approach to financial management and a commitment to maintaining a strong balance sheet. This strategic focus on exports and resource optimization, coupled with a conservative debt strategy, positions the company well for sustainable growth and financial stability.

The company has achieved a slight improvement in its working capital cycle, reducing it to 101 days during 9MCY24 from 106 days in 9MCY23. This improvement is primarily due to a reduction in inventory and payable days. Inventory days decreased to 7 days in 9MCY24 from 10 days in 9MCY23, with finished goods inventory significantly dropping to 3 days from 10 days, and work-in-process inventory recorded at 4 days. Trade receivable days also showed notable improvement, decreasing to 111 days in 9MCY24 from 140 days in 9MCY23, indicating enhanced efficiency in receivables management. Payable days saw a marked reduction, standing at 18 days in 9MCY24, down from 44 days in the previous period. On the leverage front, short-term trade leverage increased slightly to 71% in 9MCY24 from 65% in 9MCY23, while short-term total leverage rose moderately to 67% from 59%. The current ratio strengthened significantly, standing at 4.15x in 9MCY24 compared to 2.58x in 9MCY23, reflecting a robust liquidity position and an improved buffer to cover short-term obligations. The reduction in the working capital cycle and the improvement in receivables management are positive indicators of operational efficiency. The decrease in payable days suggests better cash flow management, while the increase in leverage ratios, though moderate, should be monitored. The strengthened current ratio underscores the company’s strong liquidity position, enhancing its ability to meet short-term liabilities and reducing financial risk.

The company’s coverage metrics for 9MCY24 present a mixed performance, characterized by modest cash flow growth but declining debt coverage ratios. The EBITDA-to-finance cost ratio slightly weakened to 1.7x in 9MCY24 from 2.0x in 9MCY23, indicating a tighter margin for covering finance expenses through operating profits. However, the company achieved notable FCFO growth of 43.7% in 9MCY24, a significant turnaround from the -81.7% contraction in 9MCY23, reflecting enhanced cash flow generation from operations. Despite this, the FCFO coverage of finance costs decreased to 1.4x in 9MCY24 from 2.5x in 9MCY23, suggesting reduced resilience against potential increases in finance expenses. The broader cash flow coverage ratio, which includes finance costs, current maturities of long-term debt, and excess short-term borrowings, declined to 1.3x in 9MCY24 from 2.2x in 9MCY23, highlighting added strain on cash flow adequacy for debt servicing. Additionally, the debt payback period worsened, extending to 5.7x in 9MCY24 from 2.2x in 9MCY23, indicating a longer period needed to repay borrowings and heightened credit risk if FCFO growth does not persist. On a positive note, liquid coverage improved to 0.8x in 9MCY24 from -0.1x in 9MCY23, though it remains below 1x, indicating limited liquidity to comfortably meet short-term obligations. In summary, while the strong FCFO growth in 9MCY24 is a positive indicator, the lower coverage ratios and extended debt payback period suggest emerging financial pressures. It is advisable to closely monitor the company’s credit risk profile, particularly if future cash flow generation faces challenges.

The company maintains a moderately leveraged capital structure, with a leverage ratio of 53% as of 9MCY24, up from 41% in 9MCY23. This increase is primarily due to a rise in total borrowings, which now stand at PKR 327 million, up from PKR 106 million in the corresponding period. Despite this increase, the company’s capital structure remains relatively balanced, with a healthy equity base of PKR 1,062 million (9MCY23: PKR 1,027 million), underscoring management’s commitment to sustaining shareholder equity levels. Short-term borrowings now represent a higher share of total borrowings at 19.1% in 9MCY24, compared to 7.9% in 9MCY23, reflecting a greater reliance on short-term financing. Additionally, interest payable days have increased to 6.7 days, suggesting the need for vigilant cash flow management to ensure timely payments. The company’s borrowing cost remains competitive, with a stable spread of 0.3% over KIBOR, minimizing finance expense volatility. Management’s strategy appears focused on sustaining an optimal leverage level while effectively managing finance costs and ensuring minimal exposure to unforeseen liabilities. Overall, while leverage has increased, the company’s adequate equity base and disciplined borrowing approach support a manageable financial risk profile. However, careful monitoring of short-term financing reliance and interest obligations is advisable to maintain financial stability.