Loads Limited (PSX: LOADS) was incorporated in Pakistan as a private limited company in 1979 and was later converted into a public limited company in 1994. The company is engaged in the manufacturing and sale of radiators, exhaust system, sheet metal components and other parts for automobile industry.
Pattern of Shareholding
As of June 30, 2023, LOADS have a total of 251.250 million shares outstanding which are held by 9106 shareholders. Directors and their spouse and minor children are the major shareholders of LOADS with a stake of around 41 percent in the company, followed by local general public holding 35.98 percent shares. Associated companies, undertakings and related parties account for 12.5 percent of the total outstanding shares of LOADS. The remaining ownership is distributed other categories of shareholders.
Performance Trail (2018-22)
The topline of LOADS has followed an upward trajectory in all the years under consideration except 2020 and 2023. The bottomline had been dropping until 2020 where it registered net loss. It then rebounded for the next two years only to record hefty net loss in 2023. The gross and operating margins of LOADS inched up in 2019, receded in 2020 and then recovered for the subsequent two years. While gross margin continued to rise in 2023, operating margin fell into negative territory in 2023. In contrary, net margin followed a downhill journey until 2020, recoiled in 2021 and 2022 and then touched its lowest ebb in 2023 (see the graph of profitability ratios). The detailed performance review of each of the years under consideration is given below.
In 2019, the topline recorded a year-on-year growth of 17 percent which came on the back of upward price revision to justify depreciation of Pak Rupee. Moreover, the topline growth was also the result of addition of converters in Suzuki products and hefty growth in Toyota Corolla sales. The gross profit also jumped up by 39 percent year-on-year with a GP margin of 9.1 percent in 2019 versus 7.6 percent in 2018. Operating expenses rose marginally by 5 percent year-on-year on account of higher payroll expense, advertisement & promotion, conveyance as well as penalties paid to FBR for monitoring WHT for 2017 and 2018. Other expenses also gave a breather and plunged by 23 percent year-on-year due to high base effect as the company recorded a loss on sale of investment in Pakistan Investment Bonds in 2018. Other income almost remained intact. Operating profit boasted a stunning year-on-year growth of 60 percent in 2019 with OP margin clocking in at 6.7 percent versus 4.8 percent in 2018. Things were going great until finance cost grew by 124 percent year-on-year on account of increase in discount rate coupled with increase in short-term financing facilities availed during the year. LOADS’s gearing ratio also jumped up in 2019 (see the graph of gearing ratio & finance cost). High cost of borrowing coupled with minimum tax on turnover culminated into a bottomline plunge of 49 percent year-on-year to clock in at Rs.41.22 million in 2019 with EPS of Rs.0.27 versus Rs.0.53 in the previous year. NP margin also narrowed down to 0.7 percent in 2019 versus 1.6 percent in 2018.
In 2020, COVID-19 struck and the automobile sales crashed by 53 percent year-on-year due to slowdown of economy, lockdown, restriction on the movement of people and goods as well as shrinking pockets of consumers. This produced a direct impact on the sales of LOADS which tapered off by 51 percent year-on-year in 2020. Low offtake across categories also produced a downward pressure on cost of sales, however, couldn’t sustain the gross profit which thinned down by 62 percent year-on-year in 2020 with a GP margin of 7.1 percent. Low outward freight, vehicle running and travelling cost, advertising and sales promotion as well as employee benefits squeezed the operating expenses by 4 percent year-on-year. Other expense posted a drastic 88 percent year-on-year drop as the company didn’t make any provisions for WWF and WPPF during the year. Other income more than doubled during the year as the company made markup income on loans to its subsidiaries. Despite cost curtailment and a check on operating expenses, the operating profit shrank by 56 percent year-on-year in 2020 with an OP margin of 6 percent. To top it off, finance cost grew 46 percent year-on-year due to discount rate hike in the first three quarters of 2020 coupled with long-term loans facilities availed by the company from commercial banks and ORIX leasing Pakistan Limited to manage its cash flow and working capital requirements as well as SBP refinance scheme for the payment of wages and salaries. Thisfurther drove up LOADS’s gearing ratio besides producing a dent on its bottomline which recorded a decline of 433 percent to translate into net loss of Rs.137.33 million in 2020. Loss per share clocked in at Rs.0.91 in 2020.
As the signs of COVID-19 began to fade away with a significant reduction in discount rate which spurred auto financing, the automobile sector registered a boom of 62 percent year-on-year in 2021. This resulted in the growth of 70 percent year-on-year in the topline of LOADS. Pak Rupee depreciation took its toll on the cost of raw materials consumed. Moreover, toll manufacturing, utility charges, salaries and wages etc also soared which drove the cost of sales up by 67 percent year-on-year in 2021. Gross profit grew by 101 percent which resulted in the GP margin ticking up to 8.4 percent in 2021. Rise in advertisement and promotion budget as well as outward freight raised the operating expenses up by 4 percent year-on-year. The impairment loss on trade receivables booked by LOADS in 2020 was reversed in 2021 due to recovery of outstanding receivables as the economy began to show signs of recovery. Other expenses recorded a hefty rise on the back of WWF and WPPF. Other income also recorded a rise on the back of exchange gain, gain on disposal of fixed assets and reversal of provisions against inventory. Operating profit posted a staggering year-on-year rise of 140 percent in 2021 with OP margin clocking in at 8.4 percent – almost the same as GP margin. Finance cost also contractedby 38 percent year-on-year due to downward revision in discount rate coupled with a drop in the outstanding loan portfolio of LOADS. The bottomline recorded a net profit of Rs.123.88 million in 2021 with EPS of Rs.0.62 in 2021. NP margin stood at 2.6 percent in 2021.
In 2022, the boom of automobile industry continued whereby it registered a volumetric growth of 53 percent over previous year. This also provided impetus to LOADS which posted a topline growth of 65 percent year-on-year in 2022. Soaring inflation as well as Pak Rupee depreciation pumped up the cost of sales. Moreover, high toll manufacturing charges, salaries and wages as well as other employee benefits also played their part in escalating the cost of sales. However, upward price revisions and handsome volumesdrove the gross profit up by 104 percent with a GP margin of 10.4 percent in 2022. Operating expenses surged by 41 percent in 2022 on account of higher payroll and employee benefit expense as LOADS’s workforce grew from 694 in 2021 to 733 in 2022. This coupled with higher advertisement expense, outward freight as well travelling & conveyance greatly pushed the operating expense up. Higher profit related provisioning pushed other expense up by 189 percent in 2022. However, all the expenses incurred by LOADs in 2022 were counterbalanced by a stunning growth in other income on account of markup earned on loans to subsidiaries. Operating profit boasted a growth of 114 percent in 2022 with OP margin of 10.9 percent, even higher than the GP margin. Finance cost mounted on the back of high discount rate coupled with increased borrowings during the year. The bottomline grew by 116 percent to clock in at Rs.267.17 million in 2022 with EPS of Rs.1.06. NP margin stood at 3.4 percent – the highest among all the years under consideration.
Topline enrichment that continued for two successive years couldn’t sustain in 2023 whereby LOADS registered a topline plunge of 42 percent year-on-year. This was on account of slump of automobile sales as the government imposed restrictions on imports to control the dwindling foreign exchange reserves of the country. Unavailability of essential raw materials brought the auto industry to a standstill in 2023. Auto demand wasn’t encouraging either on account of exorbitant level of inflation and high discount rate. LOADS’s cost of sales marched down by 46 percent year-on-year in 2023, resulting in 10 percent dip in gross profit. However, GP margin improved to reach its optimum level of 16.3 percent in 2023 as the company revised its prices to pass on the onus of cost hike to its consumers. The company kept a check on its operating expense which posted a marginal uptick of 1 percent in 2023. What gave a major blow to LOADS’s financial performance in 2023 was a massive impairment booked on equity investment and mark-up receivable from its associated company Hi-Tech Alloy Wheels Limited (HAWL) as the commissioning of its plant was delayed for many years on account of COVID-19 and slippages of auto sector. Lower profit related provisioning squeezed other expense by 83 percent in 2023. Other income also witnessed encouraging growth of 68 percent in 2023 on the back of rise in mark-up income on loans to subsidiaries as well as gain on disposal of fixed assets. Despite keeping a check on its expenses, the impairment booked during the year, proved to be disastrous for LOADS and culminated into operating loss of Rs.1173.85 million in 2023. Finance cost also escalated by 57 percent year-on-year in 2023 on account of unprecedented level of discount rate. LOADS registered a net loss of Rs.1255.67 million in 2023 with loss per share of Rs.5.
Recent Performance (1QFY24)
LOADS’ net sales registered a year-on-year decline of 36 percent in 1QFY24 on account of downturn of auto industry off-late due to import restrictions. Pak Rupee depreciation, high discount rate and high commodity prices have exorbitantly increased the prices of automobiles resulting in shrinking demand. This has had a direct impact on the sales of LOADS. Cost of sales dwindled by 41 percent year-on-year in 1QFY24. Gross profit largely slid by 2.1 percent in 1QFY24, however GP margin improved from 8.4 percent in 1QFY23 to 13.2 percent in 1QFY24 due to upward revision in prices. LOADS was able to curtail its operating expense by 31 percent year-on-year in 1QFY24 despite high inflation. This may be the consequence of lower freight as well as curtailed advertisement & promotion budget allocated for the period. The company didn’t book any provisioning against WWF and WPPF and hence didn’t incur any other expense during the period. Other income grew by 50 percent year-on-year in 1QFY24 which might be due to enhanced mark-up income on loans to subsidiaries. ECL on mark-up receivable from HAWL worth Rs.144.48 million severely impacted the financial performance of LOADS and squeezed its operating profit by 30 percent year-on-year in 1QFY24 despite a strict eye on expense during the period. However, OP margin improved from 15.7 percent in 1QFY23 to 17.2 percent in 1QFY24. Finance cost soared by 14 percent year-on-year in 1QFY24 on account of high discount rate. This translated into a net loss of Rs.8.5 million in 1QFY24, down 25 percent year-on-year. Loss per share also slid from Rs.0.05 in 1QFY23 to Rs. 0.03 in 1QFY24.
Future Outlook
Amidst economic headwinds, the future of automobile industry doesn’t look promising. Import restrictions coupled with Pak Rupee devaluation have put the industry in severe crisis creating ripple effects in the allied industries including automobile parts and components. The automobile demand is expected to show some recovery in the 2HFY24 owing to better agricultural output. However, the demand will remain lackluster in the urban market due to affordability concerns. LOADS can sustain its leadership in the automobile industry by focusing on cost efficiency measures to stay viable for the auto players who are already grappling against supply chain shocks, elevated costs and feeble demand. LOADS also need to reassess its investment in its subsidiary company, HAWL which is resulting in excessive losses for the company.
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