Ghandhara Auto-mobiles Limited (formerly known as Ghandhara Nissan Limited) was incorporated in Pakistan as a private limited company in 1981 and was converted into a public limited company in 1992. The company is engaged in the assembly/progressive manufacturing of vehicles which include JAC trucks. Besides, the company also imports and sells parts of Nissan, Dongfeng, and Renault vehicles in CBU condition. The company also does the assembly of other vehicles under a contract agreement. The company is a subsidiary of Bibojee Services (Private) Limited (BSL).
Pattern of Shareholding
As of June 30, 2024, GAL has a total of 57 million shares outstanding which are held by 6488 shareholders. BSL has the majority stake of 57.755 percent in the company followed by the local general public holding 26.89 percent shares. Foreign companies account for 6.4 percent shares of GAL while NIT & ICP hold 2.43 percent shares. Around 1.16 percent of GAL’s shares are held by Banks, DFIs and NBFIs. The remaining shares are held by other categories of shareholders.
Financial Performance (2020-24)
GAL’s topline slid twice over the period under consideration i.e. in 2019 and 2024. The company’s bottom line which was in the negative zone in 2019 and 2020, posted net profit in 2021. In the subsequent two years, the bottom line considerably shrank and ended up in the negative zone yet again in 2024. GAL’s margins considerably fell in 2020 followed by a staggering rebound in 2021. In the next two years, gross and net margins slipped while operating margins continued to recover. In 2024, all the margins drastically fell. The detailed performance review of the period under consideration is given below.
In 2020, GAL’s net sales dropped by 29.94 percent year-on-year. During the year, the company’s CBU sales volume dipped by 46.81 percent to clock in at 50 units. Its CKD sales volume also contracted by 74.92 percent to clock in at 155 units in 2020. This was due to the spread of COVID-19 during the year which disturbed the economic activity leading to demand destruction. Inflationary pressure also pushed the companies to increase the prices of their products which became unaffordable for the consumers who were left with little purchasing power due to restricted incomes on account of lockdown. The GAL plant was also closed due to the lockdown imposed on the manufacturing of non-essential businesses, resulting in idle capacity. Cost of sales went down by 19.26 percent in 2020, resulting in a 98.43 percent decline in gross profit. GP margin tumbled from 13.48 percent in 2019 to 0.3 percent in 2020. Distribution expenses inched up by 3.86 percent in 2020 as before the outbreak of COVID-19, the company had efficiently promoted its products through marketing campaigns and road shows and also made genuine efforts to tap the untapped segments of the market. This led to increased salaries in the sales force. Administrative expenses posted a paltry 1.95 percent growth in 2020. While GAL recorded considerably higher payroll expenses in 2020, it was greatly offset by lower provisions booked for ECL, lesser security charges, traveling & conveyance as well as legal & professional charges incurred during the year. Other income slid by 42.76 percent in 2020 due to lower gains recognized from the sale of investments in mutual funds as well as lesser dividend income from mutual funds recorded during the year. No provision booked for WWF and WPPF resulted in no other expenses in 2020. The company posted an operating loss of Rs.151.838 million in 2020 versus operating profit of Rs.269.242 million recorded in 2019. Finance costs slumped by 75.71 percent in 2020 mainly because the company didn’t incur bank advisory fees on the arrangement of loans. The discount rate also eased in the last quarter of the year and the company’s working capital-related borrowings also tapered. GAL posted a net loss of Rs.206.623 million in 2020, up 617.29 percent year-on-year. This translated into a loss per share of Rs.3.62 versus a loss per share of Rs.0.51 recorded in 2019.
In 2021, GAL’s net sales rebounded by 93.96 percent. This was because of a staggering growth of 66 percent and 516.13 percent recorded in the sales volume of CBU and CKD units respectively. GAL sold 83 CBU units and 955 CKD units in 2021. Superfluous demand post-pandemic coupled with low-cost financing provided much-needed respite to the automobile sector in 2021. Besides, the company proactively updated its models to match the needs of the commercial segment. The launch of the Kamyab Jawan Youth Entrepreneurship program also provided stimulus to the industry. The company passed on the cost pressure to its consumers which coupled with robust volumes resulted in 6788 percent higher gross profit in 2021 with GP margin climbing up to 10.72 percent. Distribution expenses mounted by 23.73 percent in 2021 due to higher salaries of the sales force. Conversely, administrative expenses tumbled by 4.59 percent in 2021. While payroll expenses increased, the decline in administrative expenses came on the back of no provisioning done for ECL, loans to employees as well as security deposits & earnest money. Traveling & conveyance expenses also considerably lessened during the year. Other income plunged by 19.69 percent in 2021 mainly on account of a drop in interest income on long-term advances to subsidiary company due to monetary easing. Provisioning done for WWF and WPPF as well as fixed assets written off during the year resulted in other expenses of Rs.14.306 million in 2021. GAL recorded an operating profit of Rs.138.901 million in 2021 with an OP margin of 4.31 percent. Finance costs shrank by 63.57 percent in 2021 due to a lower discount rate. The company registered a net profit of Rs.130.752 million in 2021 which translated into EPS of Rs. 2.29 and NP margin of 4.05 percent.
GAL’s topline strengthened by 66.14 percent in 2022. While CBU sales volume dipped by 10.84 percent in 2022 to clock in at 74 units, the sales volume of CKD units posted a significant growth of 47.64 percent to clock in at 1410 units. During the year, GAL started a local assembly of Cherry Tiggo-4 Pro and Tiggo-8 Pro which received great market traction. Pak Rupee depreciation and rising prices of fuel and other commodities resulted in a 71.78 percent cost hike in 2022. Gross profit increased by 19.18 percent in absolute terms, however, GP margin dipped to 7.69 percent in 2022. In line with elevated sales volume, distribution expenses mounted by 19 percent in 2022 primarily due to higher sales promotion expenses, godown & forwarding charges as well as salaries of sales staff. Administrative expenses inched up by only 1.12 percent in 2022. While payroll expenses remained largely intact, the growth was driven by higher rent, rates & taxes incurred during the year. Other income posted a tremendous growth of 80.49 percent in 2022 predominantly due to higher interest income as the discount rate began its upward trajectory during the year. Scrap sales, rental income, and commission income against corporate guarantee also contributed to driving up other income in 2022. Other expenses also hiked by 34.8 percent in 2022 due to profit-related provisioning and exchange loss recorded during the year. GAL’s operating profit multiplied by 99.25 percent in 2022 with OP margin inching up to 5.16 percent – thanks to robust other income. Finance cost escalated by a massive 526.34 percent in 2022 due to a higher discount rate and an enormous spike in long-term financing to finance the import of machinery for the Cherry car project and onward lending to SME truck owners. Huge finance cost squeezed GAL’s net profit by 22.64 percent in 2022 to clock in at Rs.101.155 million with EPS of Rs.1.77 and NP margin of 1.89 percent.
In 2023, GAL recorded an 87.22 percent rise. While the CBU sales volume dropped by 48.65 percent to clock in at 38 units, CKD sales volume mounted by 40.43 percent to clock in at 1980 units in 2023. This is because the company focused on institutional and corporate sales during the year. Falling foreign exchange reserves, high inflation, rising discount rate, Pak Rupee depreciation, and import restrictions took their toll on the economic activity. Besides, the purchasing power of consumers also remained suppressed. The cost of sales surged by 89.95 percent in 2023. Gross profit increased by 54.37 percent in 2023, however, GP margin thinned down to 6.34 percent in 2023. Distribution expenses multiplied by 58.65 percent in 2023 mainly on account of massive godown & forwarding charges as well as sales promotion expenses incurred during the year. Administrative expenses rose by 15 percent in 2023 mainly on account of higher payroll expenses due to inflationary pressure. Other income strengthened by 93.40 percent in 2023 due to higher interest income, gain on sale in investment in mutual funds, and scrap sales recognized during the year. Other expenses mounted by 353.34 percent in 2023 due to exchange loss as well as profit-related provisioning booked during the year. Operating profit grew by 94.2 percent in 2023 with OP margin ticking up to 5.36 percent. Finance cost registered a 101.19 percent hike in 2023 due to sustained monetary tightening and greater working capital finances obtained during the year. GAL’s net profit shrank by 37 percent to clock in at Rs.63.696 million in 2023 with EPS of Rs.1.12 and NP margin of 0.63 percent.
In 2024, GAL posted a year-on-year decline of 46.33 percent in its topline. Both CBU and CKD sales volume slumped by 60.53 percent and 45 percent respectively to clock in at 15 units and 1088 units in 2024. A sustained period of inflation had squeezed consumers’ pockets resulting in weak demand. Although import restrictions were eased due to improvement in the FOREX position, costly auto financing and the diminishing purchasing power of consumers didn’t allow the company to achieve higher sales volume. Idle plant capacity didn’t allow the absorption of fixed overheads which coupled with the high cost of imported raw materials resulted in a 62.49 percent slump in gross profit in 2024 with GP margin falling down to 4.43 percent. Distribution cost slid by 23 percent in 2024 due to curtailed sales promotion expenses as well as a dip in godown and forwarding charges incurred during the year. Administrative expenses inched up by 6.32 percent in 2024 due to higher depreciation & amortization recorded during the year. Reduced demand and idle plant capacity made the company cut down its workforce from 1060 employees in 2023 to 765 employees in 2024. Other income plummeted by 32 percent in 2024 mainly due to lower interest income on bank accounts and long-term loans to subsidiary companies. Lesser scrap sales, no dividend income, gain on sale of mutual funds and reversal of allowance for ECL also contributed to squeezing other income in 2024. Other expenses shrank by 77.67 percent in 2024 due to no profit-related provisioning done during the year coupled with considerably lesser exchange loss. GAL’s operating profit dwindled by 81.92 percent in 2024 with an OP margin of 1.8 percent. Finance costs grew by 18.75 percent in 2024 due to higher discount rates and increased short-term borrowings obtained during the year. GAL recorded a net loss of Rs.258.806 million in 2024 with a loss per share of Rs.4.54.
Recent Performance (1QFY25)
GAL posted a staggering topline growth of 120.54 percent in 1QFY25. As the economy began to show signs of improvement, the auto sector also exhibited some resilience with higher volumes and margins. Pak Rupee also showed stability during the period, resulting in a massive 2725.19 percent improvement in GAL’s gross profit in 1QFY25 with GP margin clocking in at 16 percent versus GP margin of 1.25 percent recorded during the same period last year. Distribution expenses inched up by 5.77 percent in 1QFY25 due to an uptick in sales volume. Conversely, administrative expenses slid by 3 percent during the period. Other income proved to be quite favorable and registered a 362.85 percent enhancement in 1QFY25 due to a gain recorded on the disposal of 500,000 shares of Ghandhara Industries Limited, an associate company. Higher profit-related provisioning might be responsible for a 485.71 percent spike in other expenses in 1QFY25. However, GAL’s other expenses were conveniently offset by its robust other income. The same has happened in all the years under consideration. GAL posted an operating profit of Rs.515.746 million in 1QFY25 as against an operating loss of Rs.24.871 million recorded in 1QFY24. Finance cost slid by 23.6 percent in 1QFY25 due to the onset of monetary easing coupled with a downtick recorded in external borrowings. The company posted a net profit of Rs.405.705 million in 1QFY25 with EPS of Rs.7.12 and an NP margin of 18.25 percent. This was against the net loss of Rs.116.900 million and loss per share of Rs. 2.05 posted by GAL in 1QFY24.
Future Outlook
Low cost of financing, taming inflation, stable local currency, and improved business sentiments bode well for the future of the auto industry as evident in the first quarter results of GAL.
Recently, the company has announced the expiry of its distribution and KD supply agreements with Cherry Automobiles Limited. However, to make up for the sales revenue lost from the discontinued Cherry brands, the company has launched a pickup truck, T9 Hunter.
If economic and political backdrop continues to show buoyancy; optimizing its operations and diversifying its product range by launching new products and upgrading the existing products to meet the customer demands will be the key drivers of profitability for GAL.
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