Ghandhara Nissan Limited (GHNL) was incorporated in 1981 as a private limited firm. The company has a Technical Assistance Agreement with Nissan Motor Company, Japan, and a Joint-Venture Agreement with Nissan Diesel Company, Japan, for assembly of cars, light commercial vehicles (LCVs), and heavy duty vehicles. The company was converted into a public company in 1992 under the umbrella of Bibojee Group of Companies.
In 2013, Ghandhara Nissan Limited created a wholly owned subsidiary known as the Ghandhara Dongfeng Pvt Ltd to conduct the CKD operation of Dongfeng vehicles from China. The subsidiary, which has the equity investment of Rs59.99 million, initially imported the Dongfeng vehicles from China to test the waters.
However, according to the market reports the company has started its operations to assemble the full range of Dongfeng vehicles, and it seems the firm has started to feel the momentum on its sale. The higher demand for light and heavy commercial vehicles is the primary reason for this impetus. According to the market sources, the short supply of Hyundai Shezore is helping the GHNL to fill the gap. GNHL has its assembly plant situated at Port Qasim, which can manufacture 6,000 vehicles. Ever since it discontinued the production of Nissan Sunny, it has relied on other variants to meet the fixed cost.
Performance at PSX and Stock holding
In wake of Ghandhara's super ride in recent years, GHNL shares have had a dream run. The stock has heavily outperformed the market in each of the past four years boasting triple-digit gains. It traded at under Rs10 apiece for most of 2013 and is currently worth around Rs158 apiece. At this time over 18 percent of the stocks are being held by the general public at large. The associated companies, the government fund NIT, mutual funds and Modaraba hold the rest.
Financial Performance
Ghandhara Nissan Limited after showing lacklustre performance for six years came back into the game during FY13, but things actually started to pick up in FY14. The primary issue in the past was the burden of high manufacturing and selling costs in the company, which has kept the margins under pressure. Finally, in FY13 the improvement in demand helped the production of trucks that resulted in the sustained increase in net sales. The company sold 226 units of UD Trucks and 9 Dongfeng vehicles in commercial market for the first time. GHNL also produced and supplied 1568 units under its contract assembly.
FY14 was an exceptionally good year for the firm on multiple fronts. Not only did GHNL achieve a remarkable bottom line growth in FY14, but its share showed both price momentum and higher earnings.
The higher earning in FY14 was the fruit of the ramping up its manufacturing operations; GHNL witnessed substantial improvement in its fortunes. Profit after tax reached Rs174million, up by 16 percent year-on-year. GHNL in FY14 sold 380 units of UD Trucks as against 226 units in the previous year. The Company sold 52 of Dongfeng vehicles, which were imported in CBU form, as against nine units of CBU sales during the last financial year. It is important to note that as per company information, it also received the order of 500 UD Trucks, which was an addition to its regular sales.
The core expenses for the year grew by 32 percent year-on-year in FY14 compared to 41 percent in FY13. The control on cost helped the gross margins to improve by 578bps year-on-year to reach 18 percent. Gross profits in FY14 improved by 108 percent to reach Rs471 million.
In FY15, GHNL has given a remarkable show once again. The firm reported after-tax earnings of Rs509 million, up by massive 193 percent year-on-year. Its volumetric sales growth in FY15 was 125 percent year-on-year to 856 units, which predominantly came from an increase in military contracts and easing vendor issues. The gross margins jumped to 21 percent year-on-year on the back of 12.9 percent appreciation of rupee against the Japanese yen and historically low international steel prices. In the fourth quarter alone the gross margins jumped by 27 percent, and the company enjoyed a trickle-down effect of the favourable exchange rate movement that took the earnings higher.
Recent Financial Performance
The recent six-month performance of the company has once again mostly stayed above par. GHNL sold 336 units of UD Trucks against 302 units in the corresponding period. It also sold 35 units of Dongfeng vehicles in CBU condition as against 22 units during the same period in FY15. The contract assembly had undertaken 1009 units during the period under discussion as compared to 724 units last year, and this has helped the firm increase its turnover by 13 percent year-on-year.
The distribution and administrative expensive also increased a tad primarily due to increased sales promotions. Finance cost declined by 75 percent year-on-year in the absence of long-term mark-up and reduced short-term and running finances mark-up. As a consequence of this performance, GHNL's net profit after taxes jumped to Rs241.72 million in 1HFY16 compared to Rs79.67 in 1HFY15.
Outlook
As the China-Pakistan Economic Corridor (CPEC) is becoming a game changer for the Pakistani economy, it is also a blessing for the heavy commercial vehicle (HCV) industry of Pakistan. In anticipation of higher demand, the HCV industry has overall increased its investment in upgrading. GHNL has also invested over Rs40 million in 2015 to improve its fixture and infrastructure, and the company has also invested around Rs20 million in tooling costs.
On the other hand, Ghandhara Dongfeng - a wholly owned subsidiary of Ghandhara Nissan - has already started the commercial production of its models. This will help the company to accrue major share of the market due to the price differences with the higher selling price of Japanese models. At the same time, the demand for trucks and Land Rovers will keep GHNL's contract assembly running for a considerable future due to the on-going military operations. The market is also buzzing about the production of Nissan or some other European brand's passenger cars. All these developments have made the GHNL quite attractive to the future investors and current shareholders.
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