Ghandhara Tyre & Rubber Company Limited

Ghandhara Tyre & Rubber Company Limited (PSX: G-TYR) was previously known as The General Tyre & Rubber Company. It was established as a private limited company in 1963 under the Companies Act, of 1913 (repealed by the Companies Ordinance, 1984). The company was later converted into a public limited company. It manufactures and trades tires and tubes for automobiles and motorcycles.

As of June 30, 2022, close to 58 percent of shares are held by the associated companies, undertakings, and related parties. This category includes Bibojee Services (Private) Limited and Pakistan Kuwait Investment Company (Private) Limited. The local general public owns 21.8 percent shares. The breakup of the shareholding is shown in the illustration.

Historical operational performance

GTYR has largely witnessed a growing topline with the exception of FY16, FY19 and FY20. Profit margins in the last six years have declined between FY16 and FY20 before improving again in FY21- after which they fell slightly again in FY22.

At 22.2 percent, the company witnessed the biggest growth in topline thus far during FY18 with revenue reaching close to Rs 12 billion in value terms. But this did not reflect in a higher gross margin that reduced to 17.7 percent from 21.3 percent as the cost of production consumed more than 80 percent of revenue. This was attributed to rising raw material prices, currency devaluation, and severe competition in the market. Moreover, the company also faces competition from the undocumented sector, thus net margin was also impacted which was down to 6.1 percent from last year’s 9.1 percent.

In FY19, revenue fell by 11 percent due to economic challenges such as a general slowdown, high-interest rates, inflation, and currency devaluation that collectively also affected disposable incomes. This in turn adversely impacted demand for auto parts and automobiles. In addition, some OEMs shut down their plants while the non-filers could not purchase vehicles. Thus, the gross margin slid a further 15 percent. With finance expense escalating to consume over 5 percent of revenue due to investment in Capex as well as a high discount rate, the net margin fell to its lowest thus far at 1 percent.

Topline in FY20 contracted by an even higher 16 percent as some OEMs continued the plant shutdown while sales in the second half of the year were impacted by the outbreak of the Covid-19 pandemic. This severely affected the entire auto industry. Thus, the gross margin was recorded at an all-time low of almost 12 percent. With rising operating expenses and finance expenses escalating to consume almost 10 percent of revenue, the company inevitably incurred a loss of Rs 332 million.

The company witnessed the largest growth in revenue during FY21, by over 58 percent with revenue peaking at almost Rs 14 billion in value terms. This was attributed to the resumption of business activities as lockdowns eased a few weeks after the first outbreak of the Covid-19 pandemic. The company also focused on the replacement market which saw growth in nearly all the categories. In addition, export sales posted a growth of 56 percent year on year which contributed to the higher topline. Thus, the gross margin improved to 15 percent. With some support from other income and a decrease in finance expense as a share in revenue due to lower interest rates, the net margin also improved year on year to 4 percent.

GTYR in FY22

In FY22, the company’s net sales again showed a good growth of 34 percent year-on-year, which mainly came from an enhanced focus on replacement market (RM) coupled with better Original Equipment Manufacturer (OEM) offtake. The RM segment showed good growth in almost all categories. The company had also increased its efforts on the RM segment while catering to the requirements of the OEM segment. Moreover, OEM sales, in particular, light trucks, passenger cars, and trucks/buses also improved in FY22 on a year-on-year basis. The gross margins of 13.2 percent were slightly lower than 15 percent of FY21, which was mainly due to higher raw material prices and freight charges due to the global super commodity cycle and container shortages, devaluation of PKR, usage of LPG due to low availability of natural gas, increase in utility prices and other manufacturing costs partly offset by higher sales in the replacement market, better product mix, and price increase.

On the finance cost side, the company again witnessed an increase due to higher interest rates as well as higher working capital requirements due to inflationary pressure throughout the year. However, GTYR was able to partially contain the increase in financial cost through better working capital management. This along with higher tax from super tax implementation affected the bottom line of the company. As a result, the company’s bottom line was seen contracting by around 38 percent year-on-year in FY22.