Loads Limited (PSX: LOADS) was set up in 1979 as a private limited company. Subsequently, in 1994 it was converted into a public limited company.
The company manufactures and sells radiators, exhaust systems, and other components for the automotive industry. Its clientele includes Honda, Suzuki, Toyota, Mitsubishi, etc.
As at June 30, 2020, close to 44 percent of shares were held by the directors, CEO, their spouses, and minor children., Mr. Syed Shahid Ali Shah, the chairman of the company, is a major shareholder. Nearly 35 percent of shares are owned by the local general public, followed by 12.5 percent of shares held in associated companies, undertakings and related parties; the latter solely includes Treet Corporation Limited. The remaining roughly 9 percent shares are with the rest of the shareholder categories.
Historical operational performance
Loads Limited has mostly seen a growing topline, with the exception of FY14, and fairly recently in FY20. Profit margins, on the other hand, have mostly followed a declining trend over the years.
Looking at the financial performance in the last few years, in FY17, topline grew by 9 percent, which was relatively subdued considering the double-digit growth seen in the last two years. The growth in revenue was attributed to the growth seen in trucks, tractors, Suzuki cars as well as the launch of a new model of Honda Civic. But production cost increased marginally, close to 90 percent, compared to 89 percent seen in FY16. This led to a marginal change in gross margin that also trickled down to the operating margin. However, the net margin grew from 2.4 percent in FY16 to 5.2 percent in FY17 owing to a reduction in finance expense; it nearly halved year on year. This was due to a reduction in mark-up paid on bank loans and borrowings.
Revenue in FY18 grew by 11 percent, nearing Rs5 billion. This was due to a growth seen in sales volumes, particularly of Suzuki Cultus and WagonR. Tractor sales also witnessed a growth of 29 percent, while sheet metal components saw the biggest growth in its sales revenue, although it was not a major contributor to the total revenue pie. But the cost of production exceeded 90 percent of revenue, bringing the gross margin down to 7.6 percent. With most other elements remaining similar, operating margin also reduced, while net margin fell further to 1.6 percent, the lowest seen thus far, as finance expenses increased to 2.25 percent of revenue. This was primarily due to an exchange loss.
The company maintained its growth momentum in terms of revenue, as the latter posted a growth rate of 16.8 percent in FY19. In terms of volumes, there was a decrease in sales of LCVs, HCVs, and tractors; therefore, the increase in revenue was price-driven to take into account the impact of currency devaluation. Moreover, Toyota Corolla car sales increased along with the addition of converters in Suzuki products. On the other hand, production cost reduced slightly to nearly 91 percent, allowing for some improvement in gross margin. This positive effect also trickled to the operating margin, but the escalation in finance cost due to “financial charges on equity and debt investments in subsidiaries” dropped the net margin to less than 1 percent- the lowest seen thus far.
Revenue in FY20 less than halved year on year, from Rs5.7 billion in FY19 to Rs2.8 billion in FY20. In the automotive industry, sales of all three, KCVs, HCVs, and tractors reduced by 45 percent while between the three major segments of the company, exhaust systems saw the largest contraction in sales by 59 percent; radiators saw a 50 percent decline. This was attributed to the decrease in the sales of Honda and Toyota Corolla. A big contraction in sales was observed in the last quarter of FY20 due to the outbreak of the Covid-19 pandemic that led to a shut down of businesses and production processes. Production cost, on the other hand, reached an all-time high as a percentage of revenue at almost 93 percent, shrinking gross margin to 7 percent. With finance expenses continuing to rise, the company incurred a loss for the first time, of Rs137 million.
Quarterly results and future outlook
Revenue in the first quarter of FY21 was lower by 6 percent year on year as the business activity resumed gradually after lockdowns eased. Recovery in the Suzuki segment was slow. Production costs as a percentage of revenue were nearly similar, so was the profitability. This was possible despite the lower topline due to a reduction in finance expenses. The second quarter saw a remarkable recovery as revenue grew by almost 49 percent. The second quarter also saw a similar trend as the reduction in finance expenses allowed profitability to improve. The third quarter saw further growth in revenue. With expenses remaining more or less similar as a share of revenue, the decrease in finance expenses allowed room for higher profitability.
With business activities resumed, there has been a significant recovery seen in the last three quarters that is expected to continue.