Loads Limited

Loads Limited (PSX: LOADS) was established as a private limited company in 1979. Later, in 1994 it was converted into a public limited company.

It operates in the automobile parts and accessories sector. As the name suggests, the company manufactures mufflers and exhaust systems, radiators, sheet metal components and radiator and heater cores. Some of the clients of the company include Toyota, Hinda, Suzuki, Mitsubishi, etc.

Shareholding pattern

At nearly 44 percent, the largest shareholder of Loads Limited are its directors, CEO, their spouses, and minor children. Within this, majority of the shares i.e. 41.5 percent, is concentrated with the Mr. Syed Shahid Ali Shah, the Chairman of the company. Some 35 percent shares are distributed with the local general public while associated companies, undertakings and related parties own 12.5 percent of the total shares. This category solely includes Treet Corporation Limited. The remaining about 8 percent is with the rest of the categories of shareholders.

Historical financial performance

Although Loads Limited has mostly seen a positive growth in its topline, the same cannot be said for profit margins as they have been following a downward trend, with FY20 seeing a major slide in net margin and a significant contraction in total revenue.

In FY16, the company witnessed a nearly 24 percent climb in its total revenue, crossing the Rs 4 billion mark. Sales of exhaust systems saw the largest growth at 26 percent, closely followed by sheet metal components that grew by 25 percent. This improvement in revenue was due to growth of new model of Toyota Corolla, and Punjab taxi scheme of Suzuki. Moreover, sales of both, Light Commercial Vehicles (LCVs) and Heavy Commercial Vehicles (HCVs) saw 20 percent and 40 percent growth, respectively, thus driving growth for company’s products’ demand. With a marginal reduction in cost of production as a percentage of revenue, gross margin remained flat while net margin was adversely impacted by a major drop in other income that was abnormally high in the previous year making up close to 4 percent of revenue. In the absence of the latter, net margin in FY16 reduced to 2.5 percent.

Topline growth was relatively subdued at 9 percent during FY17, compared to the double-digit growth seen in the last two years. This was driven by the launch of a new model of Honda Civic as well as growth in trucks, tractors, and Suzuki cars. This came with a marginal increase in cost of production that reduced operating margin only slightly. However, net margin improved to 5 percent on the back of a reduction in finance expense; this was brought about by a decrease in markup paid on bank loans and borrowings.

The company maintained its growth momentum as topline grew by 11 percent in FY18. This was attributed to better sales volumes of Suzuki cars, especially Cultus and WagonR. In addition, tractors sales also posted a 29 percent growth. Within the company’s products, sheet metal components, although contribute a smaller share in the total revenue pie, saw the highest growth in its sales revenue. However, the increase in revenue came at a more than corresponding rise in costs that brought down gross margins. This was also trickled down to the net margin, that was further reduced to 1.6 percent due to an increase in finance expense, driven by exchange loss.

Topline growth in FY19 was even higher at close to 17 percent, crossing the Rs 5 billion mark. Although sales for LCVs, HCVs, and tractors registered a decrease, the increase in Loads Limited’s topline was more price-driven. This was in order to account for the rupee devaluation, in addition to increase in Toyota Corolla car sales and addition of converters in Suzuki products. The lower cost pf production at 90 percent of the revenue helped to improve gross margins, but net margin did not follow the same trend as it reduced to less than 1 percent. This was a result of an escalation in finance expense that made up more than 4 percent of revenue. Finance expense rose primarily due to “financial charges on equity and debt investments in subsidiary”.

During FY20, Loads Limited’s topline less than halved to Rs 2.8 billion. Within the automotive industry, LCVs, HCVs, and tractors, all three saw a contraction of sales by an average of 45 percent. Within the company’s three major segments, exhaust systems saw the highest reduction in sales at 59 percent, followed by radiators at 50 percent. This was due to reduction in sales of Honda and Toyota Corolla. Sales revenue was also heavily impacted in the last quarter of FY20 when the country went under a lock down in response to the outbreak of Coronavirus. The costs of production also increased to more than 90 percent, bringing gross margins down. With finance cost continuing to increase, the company eventually posted a loss for the year of Rs 137 million.

Recent results and future outlook

As the economy gradually opened up, sales for the company also increased on a quarterly basis, although on a year to year basis, there was a more than 5 percent decrease. With cost of production mostly in check, gross margin remained flat while operating margin improved due to increase in other income which was later offset by a taxation expense that kept net margin also mostly flat at 1.5 percent.

In such a situation, the supply chain of an industry comes into question. The company attempted to maintain this and allowed employees to work home when possible. It also commends the government’s efforts to support the economy.