Rickshaw maker Sazgar Engineering (PSX: SAZEW) has been in the news for all the right reasons, none of which involve rickshaws. The company announced its most recent quarterly financial results reporting after-tax earnings of Rs6.2 billion, double the profits earned in this period last year, and 14 times the earnings only two years ago. Sazgar has taken quite a leap.
Sazgar began its four-wheel journey in 2022 after it decided to invest in expanding facilities and launch Chinese SUVs to the Pakistani market. The Company signed technical and cooperation agreements with Beijing Automotive Group Company Ltd. (BAIC) and Great Wall Motor Company Ltd. (GWM) for assembly of their four wheelers. At the time, a handful of new players had already entered the market and finding it more receptive than ever before.
Sazgar launched Haval H6 and Jolian and later launched their electric versions. In competition with Kia Sportage and Hyundai Tucson, Sazgar’s fully loaded and reasonably priced offerings have done incredibly well, and local buyers have responded.
As a result, sales have catapulted. Since last year, Haval’s share in the SUV segment (including Toyota Fortuner and Hilux, Hyundai Tucson and Santa Fe, Honda BR-V) has grown from 18 percent to 44 percent. In the latest quarter, Sazgar sold three times more locally assembled Haval than Hyundai did Tucson and 1.4x the total volumes for Fortuner and Hilux. The company’s financial performance reflects this growth. In 3QFY25, revenue grew 83 percent, profits are up 2x and the company is signalling confidence to shareholders by issuing a dividend. The dividend payout during the quarter was 12 percent, vs previous quarter’s 25 percent.
The company has kept costs in control which has brought the gross margins to 33 percent in 3QFY25 from 28 percent this period last year, and 12 percent during the year before that. Sazgar has optimized on costs impressively and if the company is using a form of just-in-time model for production like other assemblers, it has done a much better job of scheduling shipments of CKD kits and managing production timelines(while keeping lean inventories)than peers and aligning them with demand.
Sazgar keeps it lean in other ways too. Its overheads are 3 percent of revenue (a quarterly average of 4 percent since FY23) and it has virtually no financial charges. As a result, net margins at 17 percent is enviable as an automotive assembler just starting to operate in Pakistan.
While the SUV market may appear saturated, demand continues to expand, especially among buyers cautiously shifting toward Chinese options as imported CBUs remain prohibitively expensive. This leaves the door wide open for players like Sazgar. Though it would seem that matching Sazgar’s level of operational efficiency and strategic execution may be beyond the reach of many competitors.
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