The General Tyre and Rubber Company of Pakistan Limited (GTR) is a renowned name in Pakistan in the business of manufacturing and supplying tyres. The company was founded 1963 and commenced production the next year at a 25 acre plot located in Landhi Karachi. The company was originally established by General Tire International Corporation (GTIC) of the United States with a total capacity of only 120,000 tyres annually. In 1977, the company sold 90 percent of its shares to its current local owners Bibojee Services Ltd and retained 10 percent of the ownership. The Bibojeegroup owned by the KuliKhan Khattak family also runs Ghandhara industries and associates.
The company went into expansion in 1985 with a capacity to manufacture 600,000 tyres annually, raising capacity in subsequent years to 2.5 million tyres today. The company now caters to one third of the country's tyre demand and caters to tyres of different sizes and quality ranging from tyres for passenger cars to light trucks, trucks and buses, tractor front and rear tyres and rickshaw tyres. Recently the company has also indulged into the motorcycle as well with a capacity of one million tyres annually.
GTR has four market segments that it caters to and derives business from: Original Equipment Manufacturers (OEMs), replacement or after market, government departments or institutions and exports. It sells its tyres to replacement market through more than 150 authorized dealers and distributors.
The company has almost all auto makers as its clientele from Indus Motors, Honda and Pakistan Suzuki to HinoPak Motors, Al-Ghazi tractors, Millat Tractors, Masters Motors, Sigma motors, Afzal Motors, Karakoram Motors, Dewan Motors and the Ghandhara group.
Associations, investments and partners
The company has a technical service agreement with Continental AG, a top tyre manufacturer in Germany for modernisation, training of human resource and quality supply of products to end-users.
The company is publicly listed and as mentioned earlier, owned by the Bibojee Services group that in FY16 held 27.8 percent of the company's share while another major sponsor for the company is Pak Kuwait Investment Company owning 30 percent of the company's shares. While Continental Global Holding Netherlands B.V, a related party to GTR and possibly associated with Continental AG owned 9.8 percent of the shares.
GTR has made investments in its associate company, Ghandhara Industries Limited (GIL) with 100,700 fully paid ordinary shares of Rs 10 each representing 0.473 percent of its issued, subscribed and paid-up capital as at June 30, 2016.
GTR is currently in the process of expanding its existing 2.5 million capacity to 3.1 million tyres capacity with an investment of Rs1.2 billion. Production with this expansion will increase tyre production by 25 percent.
Operational and financial performance
General Tyres with its brand is a household name for a reason-it has seen a strong upward trajectory in sales and has invested in expansions over the years keeping on with the demand. Net sales have gone up from Rs6.3 billion to Rs9.5 billion during FY10 and FY16 with a slowly lowering costs to sales ratio. The share has gone down from 87 percent in FY11 to 76 percent in FY16 with a marginal reduction in costs of production that has improved margins. While they were trailing the stream at 13 and 15 percent a few years ago, they increased to 24 percent in FY16.
Profit margins too improved from only 3.4 percent in FY10 to almost 11 percent in FY16 while earnings per share also got a sold boost going from Rs3.65 to Rs17.27 between this time period.
FY16:
The company kicked off the year with a buying spree in the OEM segment for cars, trucks and buses but during the next two quarters, the segment took a hit because two tractors customers closed down their plants. The replacement market segment has been the bane for the company because it gets a tough competition from smuggled and under-invoiced tyres from nearby countries including China.
Revenues may have been saved by the ApniRozgar Scheme of the Punjab government that boosted sales for Suzuki cars which is a customer of General Tyres.
Overall revenues for the year registered a slight fall of 0.1 percent, though margins were still brought up from 20 percent to 24 percent. The company earned an after tax profit of Rs1 billion in FY16 against Rs733 million in FY15; registering an increase of 41 percent.
Unfortunately production or sales numbers are not available to us so it is difficult to say what capacity the company is currently running on but the expansion plans to move up production due to the economic activity foreseeable due to CPEC, it seems the company is well-placed and confident to capture a greater demand share.
The confidence of shareholders is a good indicator of company's existing operational performance. GTR's share price has been rising phenomenally since July 2016 against rebased benchmark index of KSE-100.
Snapshot of first quarter
The end of the Rozgar scheme also translated into lesser sales in the OEM segment but the company reported high sales for heavy trucks, buses and tractors that helped net revenues register a 1.3 percent increase between Q1FY17 and Q1FY16. Motor cycles sales grew by 11 percent and brought in a new customer on board for its OEM segment, which would also help in the replacement market segment since more local parts, will be available in the market for consumers.
Costs were compressed by 5 percent during this period, and despite increases in distribution and administrative costs, the company registered a profit increase of 30 percent after-tax clocking at Rs235 million in Q1FY17 against Rs180 million in this period last year.
Future outlook
The expansion in production due to the expectant demand forecast in the trucking and passenger car segments for the next few years is a positive sign for GTR. CPEC is a great indirect boost for the company. Due to the new auto policy, many new European and South Korean car players might be entering the market and starting assembly, not to mention the entry of many new trucking players into the market. This will open doors for many opportunities for GTR to bring new customers on board to it OEM segment.
Smuggling of goods into the market however and under-invoicing especially of goods from China may not bode well in the future. Though the new electronic systems at the border may help in the under-invoicing aspect but smuggling of cheap tyres will remain a threat for GTR.
Raw material prices may be on the upward trend specially synthetic and natural rubber that could affect costs during the current fiscal and may affect margins that stand at 25 percent in Q1FY17 against 21 percent in Q1FY16.
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Pattern of Shareholdings of Shareholders Shares %
Ordinary Shares (as at FY16)
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Bibojee Services (Pvt) Ltd 2.0 16,608,712 27.8
Continental Global Holding Netherlands B.V 1.0 5,844,300 9.8
Pakistan Kuwait Investment Co (Pvt) Ltd 1.0 17,931,292 30.0
Local Public 2,454.0 10,605,422 17.7
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Source: Company Accounts
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General Tyre First Quarter
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Rs (mn) Q1FY17 Q1FY16 YoY
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Sales 2,181.5 2,153.3 1.3%
Cost of Sales 1,629.4 1,709.8 -5%
Gross Profit 552.0 443.4 24%
Distribution cost 95.9 81.7 17%
Administrative cost 59.2 57.7 3%
Finance cost 29.3 26.2 12%
Profit before taxation 344.4 260.4 32%
Taxation 109.2 80.1 36%
Profit after tax 235.2 180.3 30%
Earnings per share (Rs) 3.93 3.02 30%
GP margin 25% 21%
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Source: Company Accounts