Operating in the automobile parts and accessories industry, Baluchistan Wheels Limited (PSX: BWHL) was established in 1980. The company manufactures and markets steel wheels for automobiles- trucks, buses, tractors, cars, and mini commercial vehicles. It does so with technical collaboration of GKN Sankey Limited UK. The former has its manufacturing facility spanning over nearly 24 acres at Hub Chowki, Baluchistan.
Shareholding pattern
With nearly 53 percent shares accounted for in this category, the company is primarily held by its sponsors, directors, their spouses and minor children. Of this, Mr. Muhammad Siddique Misri, one of the executive directors, holds a majority share- almost 20 percent of the total company’s shares. The local general public owns 15 percent, closely followed by “others” which holds more than 14 percent shares; some 12 percent shares are held under banks, DFIs and NBFIs. The remaining about 6 percent shares are distributed with the rest of the categories.
Historical operational performance
The topline of Baluchistan Wheels has been inconsistent, rising and falling at various rates, whereas profit margins have been consistently declining, after peaking in FY16.
During FY17, revenue increased by a little over 4 percent. This growth rate was rather subdued when compared to that seen in the last two years. The growth rate was reduced due to a decline in production of passenger cars upon completion of the Punjab Government’s Apna Rozgar Self-employment scheme. On the other hand, trucks/buses saw a 31 percent rise in their production. This was a result of CPEC-related demand generation. Similarly, tractors also saw a rise in production by 55 percent. The latter was attributed to a reduction in General Sales Tax (GST), subsidies on fertilizer and better crop yields. However, gross margin was lower than that seen in last year because of higher imported steel prices that rose the cost of production to more than 80 percent of the revenue; net margin also followed that reduced to 8 percent, down from last year’s above 10 percent.
Substantial growth in revenue nearing 23 percent in FY18 was driven by a low interest rate environment that generated auto sales in addition to the commencement of ride sharing apps. Moreover, the introduction of new models such as Civic, BRV, Fortuner and Cultus were also well- received in the market. Sales were mostly concentrated in below 1000cc cars, primarily Cultus for the price-conscious buyer and ride sharing captains. Trucks/buses also saw better sales due to infrastructure development related with CPEC projects whereas the production of rice, sugar cane and cotton helped drive up the production, demand and sales of tractors.
However, this came at a significant cost of production- 85.7 percent of revenue that squeezed the profit margins. The rise in costs was due to a number of factors: currency devaluation, increase in fuel prices as well as steel prices. Thus, net margin reduced to 4.7 percent.
Sales revenue contracted by a significant almost 16 percent in FY19. Nearly all segments of the auto industry witnessed a decline in sales that had an impact on the company’s turnover for the year. Passenger car sales declined by 4 percent; trucks/buses experienced a 33 percent decline in sales due to a slowdown in CPEC; tractor sales also reduced by 29 percent due to low production/yield of cotton crop. A major reason for the contraction of the auto industry sales was the rise in prices in response to rupee depreciation, high interest rates, and exorbitant petroleum prices. With lower sales came lower distribution costs that kept net margin from dropping significantly; it was recorded at 4.5 percent.
Covid-19 spelt disaster for the auto industry as nearly all segments of the industry witnessed a more than 50 percent contraction in sales. Upon the onset of the pandemic in the country, particularly in the last quarter of FY20, production of heavy vehicles was suspended, whereas car sales that were already lower in 1HFY20 due to high interest rates, were further exacerbated in the second half of FY20 as the purchasing power of the consumer was vastly affected due to the rupee devaluation and inflation. This was reflected in the bottomline as the company posted its lowest profit in a decade. at Rs 19 million, and a net margin of 2 percent, that less than halved year on year.
Recent result and future outlook
Revenue declined by a little over 20 percent in 1QFY21 year on year. This was attributed to the decline in car wheel sales that was recorded at Rs 164 million in the corresponding period last year, while in 1QFY21 it stood at Rs 58 million. On the other hand, trucks/buses and tractor wheel sales saw an increase. However, cost of production increased to more than 85 percent compared to last year’s 81 percent. This was more due to a decline in revenue due to lower demand, rather than an increase in cost, per se. Therefore, net margin more than halved year on year.
While presently, prospects for sales increasing seem bleak as the economy goes through a period of uncertainty, amid fears of a second wave of Coronavirus, and slow economic growth, the company hopes that revenue might improve in the future.
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