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Dewan Farooque Motors Limited (PSX: DFML) was incorporated in Pakistan as a public limited company in 1998. The company is engaged in assembling, progressive manufacturing, and sale of vehicles in Pakistan.

Pattern of Shareholding

As of June 30, 2023, DFML has a total of 138.735 million shares outstanding which are held by 4934 shareholders. The local general public has the majority stake of 86.92 percent in the company followed by its associated company, Dewan Sugar Mills Limited holding 9.84 percent shares. Joint stock companies, brokerage houses, employee funds, and trustees collectively hold 3.02 percent shares of DFML. The remaining ownership is shared by other categories of shareholders.

Financial Performance (2019-23)

During the period under consideration, DFML’s topline has posted topline growth only in 2021 and 2023. Its bottom line has been persistently posting net losses over the period. The magnitude of net loss which was increasing until 2020, lowered for the subsequent two years. However, it was followed by a greater net loss in 2023. DFML’s margins stayed in the negative zone over the period as the company was unable to post even gross profit in any of the years. The detailed performance review of the period under consideration is given below.

In 2019, DFML’s topline slid by 97.10 percent year-on-year. During the year, the overall automobile industry recorded curtailed volumes on the back of a decline in sales volume due to a slowdown of economic activity, restriction on non-filers for purchasing vehicles, high inflation and interest rate, Pak Rupee depreciation and elevated raw materials prices which drove up the selling prices of vehicles. For DFML, as the restructuring of its debt was pending, fresh working capital loans were not extended. As a result, the company was unable to continue its operating activity during the year. Due to the non-availability of banking lines, the company produced no vehicles in 2019 versus the production of 403 vehicles in 2018. DFML’s cost of sales grew by 6.43 percent year-on-year in 2019 which largely comprised of fixed cost. This culminated into gross loss of Rs.202.33 million incurred by the company in 2019, up 45.68 percent year-on-year. The company didn’t incur any distribution expenses and was able to curtail its administrative expenses by 17 percent in 2019 by streamlining its workforce from 359 employees in 2018 to 209 employees in 2019. DFML also recorded other loss of Rs.14.93 million in 2019 versus other income of Rs.134.98 million in 2018 due to a share of loss on equity investment in associate company. Operating loss magnified by 368.18 percent in 2019 to clock in at Rs.244.14 million. DFML had an accumulated markup of Rs.5.615 billion payable as of June 30, 2019. However, the company accounted for only Rs.0.14 million during the year, down 35 percent year-on-year and applied for the restructuring of its loan. DFML’s net loss stood at Rs.244.304 million in 2019, up 251.86 percent compared to 2018. Loss per share stood at Rs.1.83 in 2019 versus Rs.0.52 in 2018.

DFML registered plunge of 83.65 percent in its net sales in 2020. The overall industry continued to record decline in volumes due to demand side factors stated above. During the year, while the government lifted the restriction on non-filers from purchasing vehicles, however, imposed FED on locally manufactured cars and SUVs which further inflated the prices. DFML’s operating activity remained suspended in 2020 due to non-availability of fresh working capital lines. Cost of sales dropped by 49.75 percent in 2020, resulting in gross loss of Rs.102.19 million, down 49.5 percent year-on-year. Administrative expense was cut down by 25 percent in 2020 as the company brought down its workforce to 30 employees. Other loss mounted by 962.96 percent in 2020 due to share of loss on equity investment in associate. Operating loss mounted by 15.12 percent year-on-year in 2020 to clock in at Rs.281.05 million. DFML had an accumulated mark-up of Rs.6.211 billion payable as of June 30, 2020. However, the company didn’t provide for it in anticipation of the decision of the loan restructuring proposal. During the year, DFML also made provision of Rs.11.47 million for obsolescence of its slow moving stocks. DFML’s net loss escalated by 19.74 percent year-on-year in 2020 to clock in at Rs.292.52 million with loss per share of Rs.2.19.

In 2021, DFML’s net sales grew by 519.20 percent year-on-year to clock in at Rs.1.55 million. This comprised of manufacturing sales of Rs.1.548 million and trading sales of Rs.0.36 million. During the year, the automobile industry posted 62 percent increase in its sales volumes, however, the operational activity remained suspended. Cost of sales declined by 19.43 percent in 2021 resulting in gross loss of Rs.80.99 million, down 20.75 percent year-on-year. Administrative expense further plunged by 30.37 percent in 2021 as number of employees was reduced to 28 in 2021. Other loss also fell by 51.5 percent in 2021 due to lower share of loss on equity investment in associate company. As a result, operating loss dropped by 38.8 percent to clock in at Rs.171.99 million in 2021. DFML’s accumulated mark-up on short-term and long-term loans stood at Rs.6.595 billion in 2021, however, the company didn’t provide for it. In 2021, DFML’s provision for obsolescence of slow moving stocks grew by 50.25 percent. Net loss dropped by 35.30 percent in 2021 to clock in at Rs.189.25 million with loss per share of Rs.1.42.

DFML posted 90.7 percent year-on-year plunge in its net sales in 2022. The net sales comprised of trading sales. Due to working capital constraints, the company couldn’t resume its operations. Conversely, the overall automobile sector posted staggering growth of 54 percent in its sales volume which clocked in at 279,267 units. DFML’s gross loss multiplied by 2.64 percent in 2022 to clock in at Rs.83.13 million. Administrative expenses spiraled by 6.84 percent due to inflationary pressure despite the fact that DFML’s workforce was further trimmed down to 21 employees in 2022.. While share of loss on equity investment in associates continued to swell in 2022, higher profit earned on short-term loan to associated undertakings pushed other loss down by 8 percent in 2022. DFML recorded 1.82 percent lower operating loss to the tune of Rs.168.87 million in 2022. Provision for obsolescence of slow-moving stocks dropped by 87 percent in 2022, however, the company booked Rs.5.74 million provisions for the obsolescence of slow moving stores & spares in 2022. DFML had accumulated a mark-up of Rs.7.185 billion payable on its short-term and long-term borrowings as of June 30, 2022 which the company didn’t provide for. Its net loss shrank by 6.56 percent year-on-year in 2022 to clock in at Rs.176.83 million with a loss per share of Rs.1.33.

In 2023, DFML’s net sales grew by 25 percent year-on-year. The year was difficult for the overall automobile industry and resulted in massive layoffs and shutdown due to high inflation, discount rate, Pak Rupee depreciation, hiking international commodity prices and import restrictions, elevated prices of fuel and electricity as well as political distress. The industry’s overall sales volume eroded by 55 percent to clock in at 126.878 units. During the year, DFML entered into a technical license agreement (TLA) with KIA Corporation for the assembling of commercial vehicles. However, the company couldn’t commence its operations due to import restrictions as well as the prevailing economic and political chaos in the country. Due to halted operations, the company’s fixed overheads couldn’t be absorbed, resulting in 69.91 percent higher gross loss incurred in 2023. DFML incurred distribution expense of Rs.14.79 million on account of payroll expense as well as traveling & entertainment charges. Administrative expense also spiked by 69.79 percent in 2023 due to higher payroll expense as the company increased its workforce from 21 employees in 2022 to 44 employees in 2023. Depreciation expense, fee & subscription as well as travelling charges also played significant role in driving up the administrative expense in 2023. Other loss dropped by 42.92 percent in 2023 due to higher profit earned on short-term loan to associated undertaking and lower share of loss on equity investment in associate. Higher operating expenses culminated into 31.40 percent hike in operating loss which clocked in at Rs.221.89 million in 2023. Provision for obsolescence of slow-moving stock as well as slow-moving stores and spares grew by 15.24 percent and 10.65 percent respectively in 2023. During the year, the company didn’t provided for mark-up due on its short-term and long-term borrowings to the extent of Rs.1008.075 million in anticipation of a favorable court decision for restructuring of its outstanding loans. Net loss mounted by 30.52 percent year-on-year in 2023 to clock in at Rs.230.805 million with a loss per share of Rs.1.73.

Recent Performance (1HFY24)

During 1HFY24, DFML’s net sales eroded by 47 percent year-on-year which speaks volumes of the fact that the company has still not resumed its operational activities in partnership with KIA corporation. Cost of sales surged by 18 percent which largely comprised of fixed overheads. As a consequence, gross loss enhanced by 18 percent year-on-year in 1HFY24 to clock in at Rs.94.372 million. Distribution expense grew by 53 percent during 1HFY24 while administrative expense dropped by 6 percent. Other loss also gave a breather as it slid by 76 percent year-on-year in 1HFY24. This resulted in a 24 percent plunge in operating loss which clocked in at Rs.140.18 million during 1HFY24. The company didn’t provide for its mark-up payable during the period. Net loss contracted by 24 percent year-on-year in 1HFY24 to clock in at Rs.140.254 million with a loss per share of Rs.1.01 versus Rs.1.34 in 1HFY23.

Future Outlook

With refurbishment work almost completed at its plant with jigs & fixtures of KIA corporation arrived at the port, KIA is expected to instigate its operating activities with the plan to launch KIA Shehzore in 2024. The company is also planning to launch electric cars in coordination with renowned worldwide companies. This will enable the company to revive its sales volume, pay off its liabilities, and result in improvement in its bottom line.

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