Millat Tractors Limited

INTRODUCTION: Millat Tractors Limited (MTL) was originally formed in the year 1964 to launch and market Massey Ferguson Tractors in Pakistan. Initially, a plant was established in 1967 for assembling of tractors imported in Semi-Knocked-Down (SKD) condition.
The company underwent nationalisation in 1972, and began to assemble and market tractors for the Pakistan Tractors Corporation, a Government entity. Like many other business entities, MTL too was privatised in 1992 in an open bidding by the Government of Pakistan. The company had began to show significant strides prior to its privatisation with the setting up of the first ever engine assembly plant in Pakistan in 1982.
MTL has been a leading assembler in tractors, having set up a specialised tractor assembly plant in 1992. The plant had a production capacity of 16,000 tractors on a single shift basis. The plant was developed further for the production of intricate components otherwise not available in the country. From an initial production of 8,000 units with two product variants, MTL has expanded up to 45,000 units with eight different models. The company has also been expanding into areas beyond farming, and hence began production of Generating Sets in 1994 and a 3-Ton Fork Lift in 2002.
MTL is part of the Millat Group of Companies, which is also involved in the manufacturing of hi-tech automotive gear, automotive castings and industrial and domestic batteries. The Group is headed by Sikandar Mustafa Khan and is based in Lahore.
SECTORAL REVIEW Tractor sales hit the lowest in January this year after recording the highest numbers in December 13. Sales have since been trending upwards as the farming season matures. However, compared with FY13, tractors' production and sales as well have been consistently lower.
Cumulatively on a ten-month basis, the sector recorded a negative growth of 31 percent in production and 30 percent in sales. However, of the two tractor assemblers in Pakistan, MTL's slowdown was less severe. On an annual basis, production declined by over 21 percent during Q3 FY14 compared with Q3 FY13. Further, sales shrunk by over 50 percent for the period under review.
MTL has managed to increase its market share, up from 61 percent in FY13 to 63 percent in FY14. In January 14, the company lost significant market share but was able to quickly recover a month later.
PERFORMANCE: THIRD QUARTER FY14 A total of 6,195 tractors were manufactured during the third quarter of the current fiscal year, while 5,170 were sold. This amounted to a respective 30 percent and 35 percent decrease compared with Q3 FY13. For the nine-month period as well, there was a decrease in sales by up to 31 percent. Total revenue came at Rs 11.6 million, registering a decline of 23 percent compared with corresponding period of last year. Pre-tax profit also registered negative growth of 28 percent at Rs 1.5 billion.
Sales have major suffered due to increase in GST on tractors, up from 10 percent to 16 percent. Consequently, MTL has had to cut down on production due to suppressed demand and production targets for current fiscal year were revised downwards from 33,000 units to 23,000 units. The company also chose to bring down overhead costs by switching back to single-shaft operation. MTL has been looking forward to harvesting of Kharif crops, availability of improved credit lines to farmers and initiation of tractor leasing schemes by the Government, which will jointly help in propelling the company's sales.
The interim profit and loss statement of the company shows that a PAT of 141 million was registered during the quarter. Comparing this figure with the same period of last year, the PAT fell sharply by 57 percent. EPS also came down to Rs 3.19 from Rs 7.4 during the same period of last year. On a nine-month basis, PAT declined by 28 percent compared to last year. Operating profit as a percentage of sales fell from 12.32 percent during Q3 FY13 to 7.8 percent this quarter. Taxation as a percentage of sales also reduced from 4.3 percent in Q3 FY14 to 2.4 percent. Distribution and marketing expenses fell sharply by 31 percent due to decrease in production and sales as noted above, while administrative expenses came down by 7 percent compared to last year.
FUTURE OUTLOOK Sales have already suffered due to a hike in GST on tractors beginning January 14. The company has also expressed its optimism for revival in sales based on the Government's provisioning of credit facilities for farmers and for tractor loaning schemes to enhance agricultural output in the country. Hence, while season shifts are of prime importance for tractor sales, one must also bear in mind the upcoming budget and the subsequent allocation for the agricultural sector. Moreover, projections also suggest that MTL has seen its worst sales trough for the year so far and things are likely to pick up for the assembler.