Agriautos Industries Limited (PSX: AGIL) was established in 1981 as public limited company. The company manufactures and sells components for automotive vehicles, motorcycles, and agricultural tractors. Some of its well-known clients include Suzuki, Toyota, Atlas Honda, etc.
The company is part of “House of Habib”, their history dates back to the pre-partition era. The group operates in several businesses such as Automobile, Auto parts, Building material, Packaging, Energy and Property.
The directors, CEO, their spouses and minor children hold a negligible share in the company at less than 1 percent, while associated companies, undertakings and related parties that solely includes Thal Limited, holds a little over 7 percent of the shares in the company. About 8.5 percent shares are collectively held in numerous mutual funds; within this category, a key shareholder is Trustee National Investment (Unit) Trust. About 32 percent shares are with the ‘individuals’ while foreign investors own 42 percent.
Historical operational performance
While topline has been fluctuating at various rates over the years, profit margins have overall, followed a declining trend.
In FY16, Agriautos saw its topline growing by nearly 17 percent. This can be attributed to the growth in almost all the segments of the Auto industry, that is, passenger cars, light commercial vehicles, trucks and buses, with the exception of tractors; latter contracted by 29 percent year on year due to the uncertainty as a result of the announcement of subsidized tractor scheme by the government and the subsequent cancellation by two provincial governments. However, this could not result in higher profit margins as cost of production grew to 82 percent of the revenue, up from last year’s almost 80 percent; higher raw material consumption and salaries expense mostly drove up costs for the company, resulting in a net margin of a little over 8 percent.
Topline contracted marginally by close to 2 percent in FY17. Although nearly all the segments of the Auto industry registered growth, the decrease 24 percent in light commercial vehicles attributed to the Punjab Taxi scheme offset the improvement in other segments, impacting the overall sales of the company. However, due to a marginal decrease in cost of production, gross margin improved slightly to 18.5 percent. The effect was seen in net margin that grew to beyond 10 percent; net margin was also supported by ‘other income’ coming primarily from dividend income.
In FY18, Agriautos crossed the Rs6 billion mark, growing topline by 8 percent year on year. This could possibly be attributed to better sales of certain Suzuki cars. While cost of production and hence gross margin remained more or less flat, operating and net margin was adversely impacted due to the absence of dividend income that improved net margin last year; net margin for FY18 reduced to 8.5 percent, down from last year’s 10.4 percent.
Topline grew by another 16.5 percent during FY19 despite the new stricter changes made by the new government, such as currency devaluation, increase in discount rate and inflation rate, and tightening the imports of non-essential goods. Auto sector also saw declining sales as all segments of the sector saw reduced volumes. Therefore, the higher sales figure could be possible due to an increase in prices rather than volumes. Cost of production, on the other hand, increased notably to almost 85 percent of revenue, bringing down gross margin to 15 percent, while net margin only saw a marginal change due to ‘other income’ coming from dividend income. Agriautos is not heavily leveraged which has kept the company afloat, as opposed to other companies that took a hit on profitability due to high interest rates during FY19.
Post major changes made by the government on the economic front, in FY20 the country was gradually on the road to recovery when the pandemic hit, putting the country under a strict lock down; this caused a lot of businesses to lose out financially. Auto industry was also heavily impacted due to reduced sales as is reflected in Agriautos’ topline that nearly halved year on year, while costs still had to be incurred; this raised the cost of production to claim 95 percent of the revenue. Despite the support from other income, the company still could not cover costs, and posted a loss for the first time in a decade, of approximately Rs 30 million.
Recent results and future outlook
During 1QFY20, demand was lower and nearly disappeared in the second half of FY20 when the pandemic hit. Some recovery was seen in 1QFY21 as is also reflected in the higher sales year on year by almost 32 percent. Since cost of production saw a lower incline than topline, gross margin improved to a little over 13 percent which also trickled down to net margin.
Although the economy fears another wave of the pandemic as number of Coronavirus positive cases rise, the company foresees increased demand in the future, that is, start of the next financial year, with falling interest rates and other positives such as falling current account deficit, and growing forex reserves.