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Baluchistan Wheels Limited (PSX: BWHL) was incorporated in Pakistan as a public limited company in 1980. The principal activity of the company is the manufacturing and sale of automotive wheel rims for cars, buses, trucks, tractors, and mini-commercial vehicles.

Pattern of Shareholding

As of June 30, 2023, BWHL has a total of 13.334 million shares outstanding which are held by 1321 shareholders. Sponsors, directors, their spouses, and minor children have a majority stake of 46.10 percent in the company followed by the local general public holding 21.65 percent shares of the company. Modaraba and Mutual funds account for 11.13 percent of shares of BWHL. Insurance companies hold 2.56 percent shares while Banks, DFIs, and NBFIs have a representation of 2.47 percent in the outstanding share capital of BWHL. The remaining shares are held by other categories of shareholders.

Historical Performance (2019-23)

BWHL’s topline and bottomline which had been dwindling until 2020 posted a staggering turnaround in 2021 and 2022 only to fall back in 2023. In 2019, gross and operating margins considerably improved while net margins slightly ticked down. In 2020, all the margins slid followed by phenomenal growth in the subsequent two years. In 2023, gross and operating margins plunged while net margins slightly improved. The detailed performance review of the period under consideration is given below.

In 2019, BWHL’s net sales plunged by 15.67 percent year-on-year on the back of a decline in the sales of tractor and truck/bus wheels which dropped by 35 percent and 45 percent respectively during the year. While there was a marginal 7 percent year-on-year growth in the sale of car wheels, however, it couldn’t offset the hit coming from other categories. Overall, the auto sector didn’t perform well in 2019 due to a meteoric rise in the prices of vehicles on the back of the steep depreciation of the Pak Rupee, a high discount rate that restrained auto financing, and high petroleum prices during the year. Tractor sales dropped due to low production of cotton crops during the year while truck and bus sales also plummeted owing to a slowdown in CPEC-related activities. The company utilized 79 percent of its production capacity in 2019 versus 96 percent capacity utilization in the previous year. This resulted in a 16.8 percent year-on-year drop in the cost of sales. However, underutilization of plant capacity increased fixed cost per unit. The company passed on the onus of increased cost to its customers which resulted in GP margin improving from 14.34 percent in 2018 to 15.48 percent in 2019. Distribution expense slid by 25.24 percent year-on-year in 2019 due to lower carriage and forwarding charges as the company was unable to acquire new orders from OEMs. Administrative expenses marginally grew by 0.56 percent year-on-year in 2019 on account of higher payroll expenses despite a drop in the number of employees from 290 in 2018 to 272 in 2019. Higher exchange loss due to Pak Rupee depreciation pushed up the other expenses by 51.39 percent year-on-year in 2019. This was partially offset by considerable growth in other income due to gain on the sale of property, plant, and equipment in 2019 coupled with a write-off of liabilities that were no longer payable. Despite controlled expenses, operating profit shrank by 8.14 percent year-on-year in 2019; however, OP margin grew to 6.35 percent from 5.83 percent in 2018. BWHL had a debt-to-equity ratio of 14 percent in 2019 which dropped from 15 percent in 2018. However, the high discount rate resulted in a 252.41 percent surge in finance costs in 2019. The bottom line dropped by 18.54 percent year-on-year in 2019 to clock in at Rs. 71.51 million with an NP margin of 4.5 percent versus 4.66 percent in the previous year. EPS dropped from Rs.6.58 in 2018 to Rs.5.36 in 2019.

2020 proved to be even worse for BWHL whereby its topline substantially dropped by another 42.5 percent year-on-year. The outbreak of COVID-19 proved to be disastrous for the automobile sector with a massive drop in sales across categories. However, it is pertinent to note that while COVID-19 hit the economy in the last quarter of 2020, vehicle sales had already dwindled since the beginning of the year due to restriction of car purchases on non-filers of tax, high discount rates which had put brakes of auto financing as well as locust attack and water shortage in Sindh and Punjab region which took its toll on the agricultural output and contained the purchasing power of farmers resulting in low tractor sales. BWHL’s plant capacity utilization drastically dropped to 42 percent in 2020 due to tamed demand. The cost of sales dropped by 40.72 percent year-on-year in 2020. Not only did gross profit crash by 52.23 percent year-on-year in 2020, GP margin also tumbled to 12.86 percent. This was unlike 2019 where the company was able to strengthen its margins despite a sales drop. Operating expenses slumped by 15 percent year-on-year in 2020 principally due to lower carriage and forwarding and lower salaries expense. Other expenses dropped by 85.77 percent year-on-year due to no exchange loss incurred during 2020. Other income was magnified by a substantial 454.81 percent in 2020 due to higher profit on Treasury bills and savings accounts. This pushed other income up from 0.3 percent of sales in 2019 to 3 percent of sales in 2020. Curtailed expenses and stunning growth in other income couldn’t prevent operating profit from sliding by 74.14 percent year-on-year in 2020. OP margin radically dropped to 2.85 percent in 2020. Although BWHL’s loan book increased during the year as the company obtained SBP’s refinance scheme for the payment of salaries and wages in 2020, finance costs dropped by 65.35 percent year-on-year in 2020. BWHL’s net profit plummeted by 73.54 percent year-on-year in 2020 to clock in at Rs.18.92 million with an NP margin of 2.07 percent – the lowest ever posted by BWHL.

The gloomy times drew to a close in 2021 as BWHL posted a staggering 72.52 percent year-on-year growth in its topline. Owing to monetary easing and revival of economic activity post-COVID-19, the auto industry boasted a strong turnaround in 2021. Strong agricultural yield also buttressed the demand for tractors during the year. This had a positive impact on the sales of BWHL in 2021. The sales of cars, trucks/bus as well, and tractor wheels posted an exciting growth of 23 percent, 133 percent, and 144 percent respectively in 2021. The plant capacity utilization grew to only 44 percent in 2021 despite robust demand. Maybe, the company had leftover finished goods inventory from previous years due to lackluster sales since 2018. Cost of sales grew by 67.43 percent year-on-year in 2021. Gross profit rose by 107 percent year-on-year in 2021 and GP margin also greatly improved to 15.43 percent. Operating expenses grew by 21 percent year-on-year in 2021 due to high outward freight charges as demand recovered. High salaries and wages also pushed up the operating expenses in 2021. High provisioning for WWF and WPPF pushed other expenses up by 488.34 percent year-on-year in 2021. Other income also doubled in 2021 mainly on account of profit on treasury bills, sale of waste materials as well as gain on the sale of operating fixed assets. Operating profit multiplied by 459.65 percent year-on-year in 2021 with an OP margin of 9.26 percent. Despite the low discount rate during the year, finance costs magnified by 79.18 percent year-on-year in 2021 due to expansion in BWHL’s loan book during the year. This resulted in a debt-to-equity ratio of 18 percent in 2021 versus 17 percent in 2020. BWHL’s bottom line grew by 432.13 percent year-on-year in 2021 to clock in at Rs.100.68 million with an NP margin of 6.39 percent. EPS also surged to Rs.7.55 in 2021.

2022 was another exciting year for BWHL where it posted a 76.41 percent year-on-year rise in topline owing to rapid economic recovery which stimulated the automobile sales. Cars trucks/buses and tractor wheels posted sales growth of 110 percent, 34 percent, and 54 percent respectively in 2022. BWHL’s plant capacity utilization increased to 76 percent in 2022. The cost of sales grew by 62.68 percent due to the Pak Rupee depreciation and commodity supercycle in the global market. However, with upward revision in prices and increased demand, the gross profit posted a strong growth of 151.64 percent in 2022 with GP margin climbing up to 22 percent – the level never seen since 2016. Operating expenses grew by 29 percent year-on-year in 2022 due to a hike in salaries and wages owing to inflation as well as high freight charges. Higher provisioning for WWF and WPPF coupled with high exchange loss culminated in a 389.77 percent increase in other expenses in 2022. Other income slid by 6.12 percent year-on-year in 2022 due to lesser gain on the sale of operating fixed assets and unrealized loss on change in fair value of listed securities. Despite high expenses, operating profit grew by 194.53 percent year-on-year in 2022 with OP margin rising as high as 15.45 percent. Despite a high discount rate in 2022 due to multiple rounds of monetary tightening, BWHL’s finance cost slid by 5.69 percent year-on-year as the company largely settled its long-term loans during 2022. The bottom line enlarged by 106.83 percent year-on-year in 2022 to clock in at Rs.208.24 million with an NP margin of 7.5 percent. EPS flew to Rs.15.62 in 2022.

After two blissful years, BWHL kicked off 2023 on a dismal note as its topline slid by 39.68 percent year-on-year. The sales of car, tractor, and truck/bus wheels shrank by 55 percent, 53 percent, and 43 percent respectively. Dwindling foreign exchange reserves resulted in import restrictions which created immense supply chain impediments for the OEMs and resulted in the shutdown of their operations. On the other hand, tamed demand for automobiles due to high prices, high discount rates, and low purchasing power of consumers also hit the auto industry hard in 2023. Owing to lesser orders, BWHL also suspended its operations twice during 2023. Cost of sales tumbled by 37.69 percent year-on-year due to depressed sales volume. This resulted in a 46.71 percent year-on-year slide in gross profit with GP margin moving down to 19.45 percent in 2023. While distribution expense slumped by 14.18 percent in 2023 due to lesser freight charges, administrative expense posted a 3.42 percent year-on-year uptick due to the inflationary effect. BWHL squeezed its workforce from 217 employees in 2022 to 207 employees in 2023. Other expenses inched down by 18.69 percent in 2023 due to lower profit-related provisioning which offset higher exchange loss incurred during the year. Other income posted 92.52 percent year-on-year growth due to tremendous profit on treasury bills owing to the high discount rate. Other income stood at 6 percent of BWHL’s topline in 2023 versus 1.89 percent in 2022. Operating profit declined by 51.72 percent year-on-year in 2023with OP margin falling down to12.37 percent. Finance cost grew by 39.81 percent year-on-year in 2023 on account of the higher discount rate. Debt-to-equity ratio shrank to 15 percent in 2023.BWHL recorded a 34.5 percent year-on-year slide in its net profit in 2023 which stood at Rs.136.406 million with EPS of Rs.10.23 and NP margin of 8.14 percent.

Recent Performance (9MFY24)

During 9MFY24, BWHL posted a 20.47 percent year-on-year rise in its net sales. This was mainly due to an improvement in the sales volume of tractor wheels in anticipation of robust wheat and cotton crops. Conversely, the sale of cars, trucks, and bus wheels continued their downward journey owing to sluggish demand. The company passed on the onus of cost hike to its consumers, resulting in a 25.91 percent improvement in gross profit during 9MFY24 with GP margin strengthening to 20.10 percent from 19.23 percent during 9MFY23. Selling & distribution expenses spiked by 42.71 percent during the period supposedly due to higher freight charges incurred. Administrative expenses also succumbed to inflationary pressure and surged by 21.38 percent during 9MFY24. BWHL recorded 51.19 percent lower other expenses during the period on account of lower provisioning for WWF and WPPF. Other income posted a phenomenal 42.34 percent year-on-year rise during the period to stand at 5.88 percent of BWHL net sales in 9MFY24 versus the 4.98 percent standing registered during the same period last year. Robust other income was the consequence of increased profit from investment in treasury bills, exchange gain as well as reversal of the previous year’s tax provision. BWHL’s operating profit improved by 47.82 percent during 9MFY24 with OP margin clocking in at 14.43 percent versus 11.76 percent during 9MFY23. Finance costs escalated by 31.23 percent during the period owing to the high discount rate. BWHL’s net profit picked up by 54.24 percent during 9MFY24 to clock in at Rs.163.39 million with EPS of Rs.12.25 versus EPS of Rs.7.94 recorded during the same period last year. NP margin stood at 9.98 percent during 9MFY24 versus NP margin of 7.8 percent registered during the same period last year.

Future Outlook

With bumper crops expected this year primarily due to the low-base effect of last year owing to the flood will boost tractor sales in the coming quarter. With no sound recovery in the demand for cars, buses, and trucks in sight due to shrunken pockets of consumers and inadequate economic activity, for how long will the tractor sales buttress the financial performance of BWHL is to be seen.

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