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The decline in the Karachi Interbank Offered Rate (KIBOR) has eased the financing burden of Pakistan Services Limited (PSEL) by reducing debt servicing costs, enabling the company to redirect funds toward operational enhancements and growth initiatives, reports WealthPk.

Additionally, the reduced borrowing costs provide PSEL with vital financial flexibility, enabling investments in property upgrades, acquisitions, marketing, and service improvements to stay competitive and attract more guests in the hospitality sector. Therefore, PSEL's management is optimistic about leveraging reduced borrowing costs to focus on strategic initiatives. Hence, they plan to expand their presence in the country by developing new hotel properties in emerging tourist destinations. The company aims to invest in service enhancement, enhancing guest experiences through technological advancements.

The SBP's decision to lower KIBOR is part of a broader strategy to support economic recovery amid ongoing challenges. The easing of borrowing costs is expected to encourage businesses to invest in expansion, hire more staff, and contribute to economic growth. PSEL, operating a luxury hotel chain under the Pearl Continental brand, is particularly affected by this reduction. Incorporated in 1958, Pakistan Services Limited is a public limited company primarily involved in the hotel business, managing the Pearl Continental Hotels chain and owning a budget hotel in Lahore.

The company grants franchises to use its trade mark and name. According to the financial report on the Pakistan Stock Exchange (PSX), PSEL reported a significant increase in revenue for the three months ending September 30, 2024, with net revenue reaching Rs4.10 billion, up from Rs3.55 billion in the same period last year. This growth was attributed to improved occupancy rates for the rooms department of Rs2.136 billion and increased demand for food and beverage services of Rs2.403 billion. Additionally, other services and licensing fees also contributed Rs345 million to the revenue during the review period.

Furthermore, the company's gross profit also increased to Rs1.8 billion, reflecting higher sales and effective cost management strategies. The company reported a gross profit of Rs1.8 billion and an operating profit of Rs815.3 million in 1QFY25. During the review period, the profit before tax surged to Rs215 million. PSEL's performance suggests recovery from previous economic challenges and potential for future growth as borrowing costs decrease. Despite the increase in revenue and operating profit, the company reported a decline in net profit to Rs40.3 million in 1QFY25 from Rs61.4 million in the same period last year.

Thus, the International Monetary Fund (IMF) is supporting ongoing economic reforms in Pakistan to stabilize the economy amid structural challenges and inflationary pressures. The easing of monetary policy through KIBOR reductions aims to stimulate demand and provide businesses with liquidity. However, external factors like geopolitical tensions and rising oil prices pose risks to Pakistan's economic stability, making it crucial for companies like PSEL to remain agile and responsive to changing market conditions.

PSEL is committed to sustainability, implementing operations that align with global best practices in hospitality. They will also prioritize strengthening ties with local communities through job creation and partnerships, contributing positively to regional economies. PSEL is poised to emerge stronger from current challenges and contribute significantly to Pakistan's tourism and hospitality industry.

Credit: INP-WealthPk