Ghandhara Industries Limited

Ghandhara Industries Limited was incorporated in Pakistan in 1963. The company is engaged in the assembly, progressive manufacturing, and sale of Isuzu trucks, buses, and pick-ups.

Pattern of Shareholding

As of June 30, 2024, GHNI has a total of 42.609 million shares outstanding which are held by 8166 shareholders. Associated companies, undertaking, and related parties have the majority stake of 58.82 percent in the company followed by the local general public holding 29.62 percent shares. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-24)

GHNI’s topline posted year-on-year growth in 2021, 2022, and 2024 while the remaining years witnessed a decline in net sales. Its bottom line drastically fell in 2019 followed by a net loss recorded in 2020. GHNI’s bottomline recovered in 2021 and 2022 only to slump again in 2023. In 2024, GHNI’s net profit tremendously improved. Its margins followed a downward journey until 2020 and then rebounded in 2021. In 2022, GHNI’s margins tumbled again. In 2023, gross and operating margins inched up while net margins continued to erode. GHNI’s margins attained their optimum level in 2024 (see the graph of profitability ratios). The detailed performance review of the period under consideration is given below.

In 2019, GHNI’s topline registered a 17 percent year-on-year fall. During the year, Pakistan’s truck and bus industry also witnessed a sharp 33 percent year-on-year slump in sales volume which stood at 6763 units in 2019. This was on account of the slow progress of CPEC, higher international steel prices, weaker Pak Rupee, and a halt in government spending in 2019. In line with the industry’s trend, GHNI also sold 3018 units of trucks and buses in 2019, down 25 percent year-on-year. However, on the positive front, the company diversified its portfolio and launched the pick-up truck “D-MAX” in 2019. The company sold 391 units of its pick-up trucks in 2019. Due to lower demand and production of trucks and buses, the cost of sales slid by 9.9 percent year-on-year in 2019. This resulted in a 48.52 percent year-on-year slide in gross profit with GP margin slipping from 18.55 percent in 2018 to 11.51 percent in 2019. Distribution and administrative expenses also shrank by 8.41 percent and 22.76 percent respectively in 2019. This was on account of lower sales commission as well as lower payroll expenses respectively in 2019. GHNI also trimmed its workforce from 738 employees in 2018 to 611 employees in 2019 due to curtailed operations on the back of sluggish demand. Operating profit eroded by 59.30 percent year-on-year in 2019 with OP margin narrowing down from 13 percent in 2018 to 6.40 percent in 2019. Finance costs magnified by 237.7 percent year-on-year in 2019 on account of higher discount rates and increased borrowings particularly to finance imported merchandise. As a consequence, net profit contracted by 95.60 percent year-on-year in 2019 to clock in at Rs.59.95 million with EPS of Rs.1.41 versus EPS of Rs.31.98 recorded in 2018. NP margin also drastically dropped from 8.12 percent in 2018 to 0.43 percent in 2019.

The truck and bus industry which was already grappling with lackluster demand due to sluggish economic activity, exorbitant prices of raw materials in the international market, Pak Rupee depreciation, high indigenous inflation, and elevated finance costs was hit hard by COVID-19 in 2020. This further put a dent in the industry’s sales volume which fell by 46 percent year-on-year in 2020 to clock in at 3647 units. GHNI sold 1700 units of trucks and buses in 2020, down 44 percent year-on-year. Conversely, the sales volume of its newly launched pick-up trucks improved by 68 percent year-on-year to clock in at 656 units. GHNI’s topline nosedived by 15.25 percent year-on-year in 2020; however, its cost couldn’t fall by a similar magnitude as its sales due to the rising cost of raw materials and Pak Rupee depreciation. As a consequence, gross profit thinned down by 56.75 percent year-on-year in 2020 with GP margin inching down to 5.88 percent. Distribution expense declined by 7.7 percent year-on-year in 2020 on account of lower sales commissions incurred during the year. Conversely, administrative expenses picked up by 1.74 percent in 2020 due to higher payroll expenses as the number of employees increased to 621 in 2020. GHNI registered an operating loss of Rs.41.49 million in 2020. Its financial performance was further exacerbated by a 29.26 percent year-on-year hike in finance cost due to the rising discount rate until March 2020 coupled with increased borrowings obtained during the year. This translated into a net loss of Rs.1282.88 million in 2020 with a loss per share of Rs.30.11.

In 2021, the truck and bus industry thrived and registered a 19 percent year-on-year rise in its sales volume which clocked in at 4347 units. As the overall business environment began to gain momentum owing to ease of lockdown, strengthening of Pak Rupee as well as various economic stimulus packages initiated by the government, customers regained their lost confidence and began to invest in the automobile industry. During the year, GHNI sold 2020 units of trucks and buses, up 19 percent year-on-year. Conversely, sales volume of pick-up trucks fell by 52 percent year-on-year to clock in at 316 units in 2021. This resulted in a 27.24 percent year-on-year escalation in GHNI’s topline in 2021. Cost of sales grew by 16.48 percent year-on-year in 2021. Pak Rupee’s appreciation kept the cost in check during the year. On account of stronger local currency and upward revision in prices of trucks & buses, GHNI’s gross profit elevated by 199.53 percent in 2021 with GP margin jumping up to 13.83 percent. Distribution expense surged by 15.49 percent in 2021 mainly on account of higher salaries as well as a considerable hike in late delivery charges. Administrative expenses also escalated by 29.27 percent in 2021 due to higher payroll expenses as a number of employees grew to 681 in 2021. Higher scrap sales as well as profit on saving accounts and term deposits drove other income up by a massive 243.71 percent in 2021. However, it was largely offset by a 488.53 percent year-on-year spike in other expenses due to higher profit-related provisioning as well as provision booked for doubtful debts, deposits, and advances in 2021. GHNI was able to recover from operating losses in 2021 and posted a robust operating profit of Rs.1204.28 million. Finance cost also gave a breather in 2021 as it contracted by 51.97 percent year-on-year due to a lower discount rate. GHNI posted a net profit of Rs.604.21 million in 2021 with EPS of Rs.14.18 and NP margin of 4 percent.

In 2022, GHNI’s topline registered a staggering 61.77 percent year-on-year escalation. This was backed by both price revisions and improved volumes. During the year, the company sold 3016 units of trucks and buses, up 49 percent year-on-year. The off-take of pick-up trucks also grew by 50 percent year-on-year to clock in at 473 units in 2022. The sales volume of the overall truck and bus industry also boasted a 49 percent year-on-year rebound to clock in at 6498 units in 2022. This was on account of the bullish trend prevailing in the local economy in the first three quarters of 2022. The cost of sales hiked by 64.86 percent year-on-year in 2022 due to the steep depreciation of the Pak Rupee as well as a spike in commodity prices. Gross profit grew by 42.53 percent year-on-year in 2022; however, GP margin marched down to 12.19 percent. The company was able to maintain its administrative expense at last year’s level as the number of employees slumped to 657 in 2022. Conversely, distribution expense mounted by 69.20 percent year-on-year in 2022 on account of a massive hike in sales commission. Operating profit improved by 32.24 percent year-on-year in 2022, yet, OP margin plunged to 6.56 percent. Despite monetary tightening, GHNI was able to cut back its finance cost by 3.14 percent in 2022 due to efficient usage of its borrowing lines. As a result, its net profit rose by 20.57 percent year-on-year in 2022 to clock in at Rs.728.50 million with EPS of Rs.17.10. NP margin ticked down to 3 percent in 2022.

The economic and political upheaval that began in the last quarter of 2022, aggravated in 2023. High inflation, Pak Rupee depreciation, exorbitant commodity prices, import restrictions, and hikes in energy tariffs and discount rate took their toll on the operational performance of businesses besides shrinking the pockets of consumers. The truck and bus industry also suffered due to a widespread slowdown in economic activity. The overall industry sales narrowed down by 41 percent year-on-year in 2023 to clock in at 3836 units. GHNI’s sales volume massively declined to clock in at 1600 units of trucks and buses, down 47 percent year-on-year, and 194 units of pick-up trucks, down 59 percent year-on-year in 2022. Gross profit plummeted by 22.21 percent year-on-year in 2023; however, GHNI was able to drive up its GP margin to 15.82 percent by passing on the onus of cost hikes to its consumers. Distribution expenses dwindled by 4.46 percent year-on-year due to lower payroll expenses. Administrative expenses inched up by 5.48 percent year-on-year in 2023 due to higher repair & maintenance, utility charges as well as traveling and conveyance charges. Operating profit dropped by 25 percent year-on-year in 2023, however, a check on operating expenses resulted in a better OP margin of 8.2 percent. The unprecedented discount rate resulted in a 70.35 percent higher finance cost in 2023. This translated into a 75.37 percent thinner bottom line in 2023. Net profit clocked in at Rs.179.42 million in 2023 with EPS of Rs.4.21 and NP margin of 1.2 percent.

In 2024, GHNI’s net sales ticked up by a marginal 0.85 percent. Subdued demand was the result of economic and political instability prevailing in the local market with inflation, discount rate, and exchange rate presenting their ugliest form. The overall industry’s volume dropped by 31 percent in 2024 to clock in at 2641 units. The company sold 1333 units of trucks & buses and 154 units of D-MAX pick-ups, down 16.69 percent and 20.62 percent respectively. The cost of sales dropped by 3.63 percent in 2024 due to efficient cost management. This coupled with strategic pricing decisions of the management resulted in 24.7 percent growth in the company’s gross profit in absolute terms with GP margin climbing up to 19.56 percent. Distribution expenses mounted by 16.55 percent in 2024 mainly on account of higher commissions, advertising expenses, late delivery charges, and after-sale services charges incurred during the year. Administrative expenses ticked up by 3.26 percent in 2024 due to inflationary pressure. This was despite the fact that the company squeezed its workforce from 664 employees in 2023 to 542 employees in 2024. The reversal of the provision booked against ECL resulted in a 77.33 percent decline in other expenses in 2024. Lesser scrap sales made during the year also drove down other income by 34.39 percent in 2024. GHNI recorded a 33.15 percent improvement in its operating profit in 2024 with OP margin rising up to 10.83 percent. Finance cost tapered off by 32.5 percent in 2024 due to lesser borrowings. This coupled with the improved liquidity position of the company resulted in a gearing ratio of 0 percent in 2024 versus a gearing ratio of 26 percent recorded in the previous year. Net profit enhanced by 335.51 percent in 2024 to clock in at Rs.781.41 million with EPS of Rs.18.34 and NP margin of 5.33 percent.

Recent Performance (1QFY25)

During the first quarter of FY25, GHNI posted a staggering 140.26 percent year-on-year growth in its topline. The improvement in macroeconomic indicators particularly the decline in policy rate and general inflation spurred automobile sales during the period. The industry’s sales volume of trucks & buses increased by 72 percent year-on-year during 1QFY25. The company also sold 175 percent more units in 1QFY25 versus the sales volume recorded during the same period last year. The cost of sales surged by 125.28 percent during 1QFY25. This resulted in 210.59 percent growth in gross profit during the period with GP margin clocking in at 22.70 percent versus GP margin of 17.56 percent recorded during 1QFY24. Higher sales volume and capacity utilization resulted in 71.38 percent higher distribution expense and 22 percent higher administrative expense in 1QFY25. Higher provisioning for WWF, WPPF, and ECL resulted in 822 percent higher other expenses incurred during the period. However, it was offset by 53.32 percent higher other income recognized during the period which appears to be the result of higher profit on saving accounts. GHNI’s operating profit strengthened by 302.41 percent in 1QFY25 with OP margin clocking in at 16.93 percent versus OP margin of 10.11 percent recorded during 1QFY24. Finance cost slid by 74.29 percent during 1QFY25 due to discount rate cuts coupled with fewer outstanding borrowings. GHNI recorded 936.73 percent higher net profit in 1QFY25 to the tune of Rs.638.6 million with EPS of Rs.14.99 versus EPS of Rs.1.45 recorded during the same period last year. NP margin grew from 2.45 percent in 1QFY24 to 10.55 percent in 1QFY25.

Future Outlook

With the ease of import restriction and the strengthening of Pak Rupee, the company may be able to reduce its cost. Moreover, the resumption of projects such as Reqo Diq mining, Thar coal, and dam construction may positively contribute to the demand for trucks. Axle load requirement may also prove to be beneficial for the company’s volumes.