The Pakistan Automobile Corporation (PACO) under the administration of the Ministry of Production incorporated Bolan Casting Limited (BCL) in 1982. However BCL started commercial production in 1986. In 1993 the automotive castings maker was privatised and control was taken over by a joint venture between Millat tractors and employees of Bolan casting.
Over the years, BCL grew to become an important element of the auto industry, especially the tractor industry. At present, BCL is the biggest automotive casting maker of Pakistan. BCL is located at around 40 kms from Karachi near Hub chowki. The company has a covered area of 20,000 square meters and makes around 16,000 tons of castings per annum.
Customers The company has 14 major customers. The customers can be divided into 3 main types; tractor manufacturers, which include Millat and Al-Ghazi tractors, automobile manufacturers, which include truck and bus assemblers, and engineering companies like Pakistan Machine Tools Factory and Pakistan Synthetic.
Products Up till now, BCL has made more than 200 types of castings, and is right now making almost 70 products that include cylinder blocks, heads, transmission cases, axle cases etc for tractors, brake drums, hubs, exhaust manifolds, spring pads, shackles, pulleys etc for trucks and buses, and pulleys, brake drums and discs for cars. The company is also engaged in making products for other engineering companies such as pump heads, pump bases, roller dies and bomb shell etc.
Highlights of FY11 The effects of a slowdown in foreign and local investment, and deteriorating the law and order situation were felt by BCL. Plus, like other manufacturing sectors, the auto sector suffered from gas and electricity shortage and rising energy costs.
Despite these challenges, BCL had a good start this year which continued till the third quarter, after which, the company was badly hit by a sudden decline in tractor sales, since tractor manufacturers are the largest customers of BCL.
The decline in tractors sales was due to the postponement of purchases by investors, growers etc who thought that GST would be removed. The removal of the sales tax would have resulted in tractor prices decreasing by Rs 50,000 to Rs 200,000 per vehicle.
The sentiment about the abolishment of the tax was shared by customers, tractor manufacturers and vendors, and, going by the market sentiment, BCL produced 16,278 tons of castings in FY11 as compared to 16,069 tons in FY10, assuming that sales would pick up. However, since the decision to charge 16 percent GST was not abolished, the company managed to sell only 14,895 tons in FY11 as compared 15,341 tons in FY10.
Net sales Despite the bad economic health of the country, the upwards trend in net sales continued, with net sales standing at Rs 1,946 million in FY11, a 14 percent increase compared to the Rs 1707 million in FY10. The increase in sales would have been much higher had the tractor industry not come to a complete halt.
Cost of sales Cost of sales rose by 16.5 percent in FY11 compared to FY10. The major contributor to the increase in costs was fuel and power. Between FY10 and FY11, fuel and power expenses rose by 29 percent despite a mere 1.3 percent increase in production.
Profitability Surging fuel prices and frequent power shortages resulted in a decrease in gross profit margin (GPM), while lower sales to tractor manufacturers put further pressure on profitability. Combined, these two resulted in a decrease in GPM from 14.03 percent in FY10 to 12.08 percent in FY11.
In addition, the decrease in other operating income and increase in distribution and administrative costs added pressure on operating margins. However, a slight consolidation was seen in the form of a decrease in the finance cost. Resultantly, the net profit margin fell from 4.81 percent in FY10 to 4.02 percent in FY11.The EPS stood at Rs 7.5 in FY11 as compared to Rs 7.88 in FY10.
Long-term financing settlement and short-term generation The upwards trend in the short term solvency position of the company continued in FY11. The current ratio stood at 1.84 in FY11 compared to 1.57 in FY10. However, in 1HFY12, the company's short-term financing touched its upper limit as the company needed financing to pay its administrative and other expenses.
The company settled its long-term financing which stood at Rs 36 million in FY11. The company had taken this loan in 2007 to finance the plant expansion. Hence, the debt to equity ratio in FY11 fell to 0.
Outlook Over the last two years, despite facing the worst energy crisis, the company performed well. However, in the last six months, the whole tractor industry and its allied industries, including BCL, came to a complete halt. And in the first quarter of FY12, BCL reported a loss of Rs 82 million.
While talking to BR research, a company official said that the decision of the government to impose GST on tractors was given a very warm welcome by the industry, and despite the imposition of the tax, sales were not affected. However, after the confusion created by the government; investors, growers and farmers delayed purchases.
The outlook for the rest of FY12 appears good, and data from the Pakistan automotive manufacturers association (PAMA) show that the sales of tractors have started to pick up. The total unit sales in October FY12 were 4025 units well above the 1036 and 957 units in July and August of the same year. The recovery seen in the last three months is expected to continue in the last two quarters of FY12, assuming that the government doesn't create another controversy.
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Bolan Castings Ltd
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FY11 FY10 FY09
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Net sales Rs(mn) 1946 1707 1604
Gross profit Rs(mn) 235 239 164
PAT Rs(mn) 78 82 34
Profitability ratios
Gross profit ratio % 12.08 14.03 10.24
ROE % 14.98 17.6 8.85
ROA % 7.91 7.88 3.8
liquidity ratios
Current ratio 1.84 1.57 1.44
Quick ratio 1.12 1.19 1.1
leverage ratios
Equity turnover times 3.73 3.66 4.17
Debt-equity ratio 0:1 3:97 4:96
Activity ratios
F.G inventory turnover days 9 5 4
Debtors turnover days 58 74 54
Asset turnover % 1.97 1.64 1.79
Fixed asset turnover times 7.8 6.84 6.29
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Source: company accounts
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
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