Loads Limited

Loads Limited (PSX: LOADS) was incorporated in Pakistan as a private limited company in 1979 and was later converted into a public limited company in 1994. The company is engaged in the manufacturing and sale of radiators, exhaust system, sheet metal components and other parts for automobile industry.

Pattern of Shareholding

As of June 30, 2022, LOADS have a total of 251.250 million shares outstanding which are held by 9396 shareholders. Directors and their spouse and minor children are the major shareholders of LOADS with a stake of around 40 percent in the company. This is followed by local general public holding 34.5 percent shares. Associated companies, undertakings and related parties account for 13.54 percent of the total outstanding shares of LOADS. Banks, DFIs and NBFIs hold 1.22 percent shares of the company. The remaining shares are held by other categories of shareholders.

Performance Trail (2018-22)

Except for a drop in 2020, the topline of LOADS has been growing staggeringly in all the years under consideration. The bottomline had been dropping until 2020 to record net loss in the year and then started rebounding. The margins of the company also maxed out in 2022 after touching their lowest ebb in 2020.

In 2019, the topline recorded a year-on-year growth of 17 percent which came on the back of upward price revision to justify devaluation of Pak Rupee. Moreover, the topline growth was also the result of addition of converters in Suzuki products and hefty growth in Toyota Corolla sales. The gross profit also jumped up by 39 percent year-on-year with a GP margin of 9.1 percent in 2019 versus 7.6 percent in 2018. Operating expenses generally remained under control as it rose marginally by only 5 percent year-on-year. Other expenses also gave a breather and plunged by 23 percent year-on-year due to high base effect as the company recorded a loss on sale of investment in Pakistan Investment Bonds in 2018. Other income almost remained intact. Operating profit boasted a stunning year-on-year growth of 60 percent in 2019 with OP margin clocking in at 6.7 percent versus 4.8 percent in 2018. Things were going great until here until finance cost grew by 124 percent year-on-year on account of increase in discount rate coupled with increase in short-term financing facilities availed during the year. High cost of borrowing coupled with minimum tax on turnover culminated into a bottomline plunge of 49 percent year-on-year to clock in at Rs.41.22 million in 2019 with an EPS of Rs.0.27 versus Rs.0.53 in the previous year. NP margin also narrowed down to 0.7 percent in 2019 versus 1.6 percent in 2018.

In 2020, COVID-19 struck and the automobile sales crashed by 53 percent year-on-year due to slowdown of economy. This produced a direct impact on the sales of LOADS which tapered off by 51 percent year-on-year in 2020. Low off take across the categories produced a downward effect on the cost of sales, however, couldn’t sustain the gross profit which thinned down by 62 percent year-on-year in 2020 with a GP margin of 7.1 percent. Low outward freight, vehicle running and travelling cost, advertising and sales promotion as well as employee benefits squeezed the operating expenses by 4 percent year-on-year. Other expense posted a drastic 88 percent year-on-year drop as the company didn’t make any provisions for WWF and WPPF during the year. Other income more than doubled during the year as the company made markup income on loans to its subsidiaries. Despite cost curtailment and a check on operating expenses, the operating profit shrank by 56 percent year-on-year in 2020 with an OP margin of 6 percent. To top it off, finance cost grew 46 percent year-on-year due to discount rate hike in the first three quarters of 2020 coupled with long-term loans facilities availed by the company from commercial banks and ORIX leasing Pakistan Limited to manage its cash flow and working capital requirements as well as SBP refinance scheme for the payment of wages and salaries. This put further dent on the bottomline which recorded a decline of 433 percent to translate into a net loss of Rs.137.33 million in 2020. The loss per share clocked in at Rs.0.91 in 2020.

As the signs of COVID-19 began to melt away with a significant reduction in discount rate which spurred auto financing, the automobile sector registered a boom of 62 percent year-on-year in 2021. This resulted in the growth of 70 percent year-on-year in the topline of LOADS. Pak Rupee devaluation took its toll on the cost of raw materials consumed. Moreover, toll manufacturing, utility charges, salaries and wages etc also soared which drove the cost of sales up by 67 percent year-on-year in 2021. Gross profit grew by 101 percent which resulted in the GP margin ticking up to 8.4 percent in 2021. Rise in advertisement and promotion budget as well as outward freight raised the operating expenses up by 4 percent year-on-year. The impairment loss on trade receivables booked by LOADS in 2020 was reversed in 2021 due to recovery of outstanding receivables as the economy began to show signs of recovery. Other expenses recorded a hefty rise on the back of WWF and WPPF. Other income also recorded a rise on the back of exchange gain, gain on disposal of fixed assets and reversal of provisions against inventory. Operating profit posted a staggering year-on-year rise of 140 percent in 2021 with OP margin clocking in at 8.4 percent – almost the same as GP margin. Finance cost also contracted by 38 percent year-on-year due to downward revision in discount rate coupled with a drop in the outstanding loan portfolio of LOADS. The bottomline recorded a net profit of Rs.123.88 million in 2021 with an EPS of Rs.0.63 in 2021. NP margin stood at 2.6 percent in 2021.

In 2022, the boom of automobile industry continued whereby it registered a volumetric growth of 53 percent over previous year. This also provided impetus to LOADS which posted a topline growth of 65 percent year-on-year in 2022. Soaring inflation as well as Pak Rupee devaluation pumped up the cost of sales. Moreover, high toll manufacturing charges, salaries and wages as well as other employee benefits also played their part in escalating the cost of sales. However, upward price revisions and handsome volumes drove the gross profit up by 104 percent with a GP margin of 10.4 percent in 2022. While operating expenses posted a drastic growth of 41 percent in 2022, it was counterbalanced by a stunning growth in other income on account of markup earned on loans to subsidiaries. Operating profit boasted a growth of 114 percent in 2022 with an OP margin of 10.9 percent, even higher than the GP margin. Finance cost mounted on the back of high discount rate coupled with increased borrowings during the year. The bottomline grew by 116 percent to clock in at Rs.267.17 million in 2022 with an EPS of Rs.1.06. NP margin also stood at 3.4 percent – the highest level among all the years under consideration.

Recent Performance (1HFY23)

The import restrictions imposed by the government on the back of dwindling foreign exchange reserves wreaked havoc on the automobile industry whose sales dropped by over 30 percent in automobile and heavy vehicle segments. The allied industries also took the hit. As a result, LOADS’s topline plummeted by 20 percent year-on-year in 1HFY23. Low off take also reduced the cost of sales, yet couldn’t sustain the gross profit which slid by 7 percent year-on-year, however GP margin improved to 11.6 percent in 1HFY23 versus 10 percent in 1HFY22. Operating expenses grew by 11 percent year-on-year while other expenses shrank. Other income lent a hand as it grew by 73 percent year-on-year in 1HFY23 mainly on the back of markup income from loans to subsidiaries. This provided impetus to operating profit which grew by 19 percent year-on-year in 1HFY23 with an OP margin of 14.7 percent versus 10 percent during the same period last year. Finance cost almost doubled during the period due to multiple upward adjustments in discount rate. This proved to be the Achilles heel and pushed the bottomline down by 79 percent year-on-year to clock in at Rs.27.61 million in 1HFY23. EPS also plunged from 0.53 in 1HFY22 to 0.11 percent in 1HFY22 while NP margin slid from 3.7 percent in 1HFY22 to 1 percent in 1HFY23.

Future Outlook

Amidst economic headwinds, the future of automobile industry doesn’t look promising. Import restrictions coupled with Pak Rupee devaluation have put the industry in severe crisis creating ripple effects in the allied industries including automobile parts and components. To sustain its leadership in the auto parts industry, LOADS needs to focus on cost efficiency measures to stay viable for the auto players who are already grappling against supply chain shocks, elevated costs and feeble demand. A turnaround in the debt oriented capital structure of LOADS would also help control the mounting finance cost and play a role in keeping the bottomline in profit zone.