Millat Tractors' FY16: A bad harvest

Fiscal '16 was one of the worst years in the history of Pakistan's tractor industry, and it's being reflected in Millat Tractors Limited's full-year financials; the company's top line dropped 26 percent over last year, while the bottom line was down by 27 percent.

As per the company's last quarterly report, the 9M figures marked the lowest sales in the last five years. Agriculture has had a rough year in Pakistan, with the sector registering a near- 0.2 percent decline in FY16. With declining commodity prices and farmers' low purchasing powers, the demand for tractors remained soft. Moreover, a delay in the payment of pending refunds and the imposition of additional taxes on imports and inputs by FBR were also detrimental to the industry, as per the last Director's Report. Finally, the Sindh and Punjab tractor scheme imbroglio also played its part in distorting the market.

However, gross margins inched up slightly over the year. In order to improve the profitability, the company had adopted various measures for reduction of costs. This also included moving from double to single shift. Nevertheless, net margin declined over the year because of lower other income, and an increase in administrative expenses.

Looking ahead, the coming year might bring about a rebound for the company. With the severe drop in sales and increased costs, Millat is currently eyeing the global market for its products. The company entered into an agreement with M/s AGCO for the export of "Made in Pakistan" Massey Ferguson tractors to world markets in December of last year. As per the last Director's Report, the Millat products with the "Made in Pakistan" tag have been launched under MF-300 series. Moreover, the sales tax on tractors has been halved to five percent in Pakistan. These are good news, and might bring a turnaround in the ongoing fiscal year.