Agriauto Industries Limited

Agriauto Industries Limited (PSX: AGIL) was established in Pakistan in 1981 as a public limited company. The company manufactures and sells components for automotive vehicles, motorcycles, and agricultural tractors. Some of the company’s clients are Suzuki, Toyota, Atlas Honda, etc. It is part of the “House of Habib '', that has several businesses like Automobile, Auto parts, Building material, packaging, energy, and property.

Shareholding pattern

As at June 30, 2020, over 42 percent of shares are held by foreign investors, followed by 33 percent owned by individuals. Over 7 percent of shares are held by the associated companies, undertakings, and related parties, which solely includes Thal Limited. Over 6 percent shares are held in mutual funds, while the directors, CEO, their spouses, and minor children own less than 1 percent share. The remaining roughly 11 percent shares are with the rest of the shareholder categories.

Historical operational performance

While topline over the years has been fluctuating, profit margin, until FY20 followed a declining trend, and improved only recently in FY21.

During FY17, topline contracted by almost 2 percent, after growing at double digits in the last two years. The auto sector had been performing well and continued to do so. Growth in the agriculture sector encouraged tractor sales, higher demand for HP tractors owing to the road-building projects; in addition, CPEC activities also increased the production of trucks and buses. But it was the 24 percent decrease in light commercial vehicles that adversely impacted the net revenue. While there was a marginal reduction in production cost, that kept gross margin more or less flat at 18.5 percent, operating and net margin increased by a greater extent due to the rise in other income that grew from Rs 25 million in FY16, to Rs 146 million in FY17. This mainly came from dividend income. Thus, the net margin was recorded at 10.4 percent.

In FY18, the topline grew by 8 percent, crossing Rs6 billion in sales. Despite the economic challenges, the automotive sector performed well with growth seen in all the segments of the industry. Demand had been increasing, while new players also entered the industry. While production cost remained more or less unchanged, keeping gross margins stable at close to 18 percent, operating and net margin reduced to 12.6 percent and 8.5 percent as other income fell to Rs 54 million since the subsidiary company did not pay any dividend during the year. Dividend income alone in FY17 amounted to Rs 114.4 million.

There was a double-digit growth in revenue, at 16.5 percent, in FY19, crossing Rs 7 billion in sales. There were several challenges for the country as the new government adopted strict policies, with significant currency devaluation, rise in interest rates, and inflation. As a result, demand also shrunk; the agriculture sector declined by 0.85 percent, the manufacturing sector by 1.4 percent, and the services sector by a notable 4.7 percent. In terms of volumes, the auto sector witnessed a decline in all the segments, therefore it is likely that the increase in revenue is a function of price. But production cost grew to nearly 85 percent of revenue due to increases in input costs; gross margin was reduced to 15 percent. But the net margin was relatively flat at 8.5 percent due to a significant rise in other income and a lower tax expense. Other income, again, was largely derived from dividends.

Agriautos witnessed the biggest contraction in revenue in FY20, by 47 percent, shrinking to Rs 3.8 billion in value terms. The year already began with a slow demand due to a general economic slowdown, and high inflation that increased prices of vehicles; the second half of the year was struck by the Covid-19 pandemic, which resulted in lockdowns and abrupt halts productions. The automobile sector, in particular, saw zero sales in April 2020. Thus, gross margin fell to an all-time low of 4.5 percent, with the company eventually incurring a loss for the year of Rs 30 million for the first time, despite the support by other income and a significant drop in taxation.

Recent results

Revenue recovered in FY21, as it nearly doubled year on year, recorded at almost Rs 7 billion for the year. The economic indicators also depicted positive trends; the Large Scale Manufacturing production registered a 12.8 percent growth compared to 8.7 percent last year. This growth was mostly brought in by the textile, automobile, food, and cement sector. The auto sector, in particular, recovered on the basis of lower interest rates for vehicle financing. Production cost, however, was although lower than last year, at over 86 percent of revenue, it was considerably higher if compared to the levels seen before FY20. So, year on year profit margins improved, from 4.5 percent gross margin in FY20, to 13.4 percent in FY21. With significant support coming from other income, which was recorded at an all-time high of Rs 263 million, the company posted a net margin of 9.3 percent.