Ghandhara Nissan Limited (GHNL)

Going through web-copies of scanned balance sheets with blurry texts and numbers is quite a painstaking task. But when a firm's stock shoots or rather sky rockets after hibernating for about four years, then the same blurry balance sheets start looking quite appealing.
GHNL's stock is one such gem that has shot through the roof in roughly the last fourteen months. In just the calendar year 2015 to date, the stock has jumped by 17 percent against a 3 percent rise in benchmark KSE index. In the last 12 months, GHNL's stock has risen 198 percent as against 29 percent in the benchmark KSE. Ghandhara Nissan is a group company of Bibojee Services (Pvt) Limited, which had about 62 percent stake in GHNL. Incorporated in 1981 as a private limited firm with a licence to distribute Nissan vehicles in CBU condition in Pakistan, the firm went public in 1992.
Currently, about 18 percent of the total stake or about 8.27 million shares are held with the public at large. Other major shareholders include different funds within the NAFA family of funds, and the government fund NIT that held about 3 percent stake as of June 2014. Aside from the cars business, which tanked in recent years, the company is in the business of producing heavy-duty trucks and busses as well as light commercial vehicles.
In July 2013 GHNL formed wholly owned subsidiary Ghandara Dongfeng Pvt Ltd with equity investment of Rs 59.99 million. The principle business of this new formed company is to carry-out CKD operation of Dongfeng vehicles from China, although initially it had only been importing the same to test the market.
Ghandara Dongfeng has already started its operation to assemble Dongfeng vehicles. According to a recent research note (January-27) by Standard Capital Securities, the company seems to be gearing up for sale of Dongfeng vehicles "given higher demand of light and heavy commercial vehicles in the absence of trademark Shehzore. Hyundai Shezore truck is not coming in the market & hence GHNL has a chance to fill the void for countrywide commercial activity."
Since the company's plants are severely under-utilised, it contracts out its assembly line to its sister concern Ghandhara Industries that produces Isuzu trucks, of which a sizable quantity is purchased by Pakistan Army. GHNL also contracts out its production line to Sigma Motors, which manufactures Land Rovers and sells it to Pakistan Army. Contract assembly, therefore, also helps GHNL earn decent revenues. While detailed segment reporting is not available, according to the firm's notes to FY14 accounts, 90 percent of GHNL's FY14 revenues came from the manufacturing activity compared to 79 percent in the year before.
RECENT FINANCIAL PERFORMANCE Following a persistently weak performance between 2008 and 2013 the fiscal year ending June 2014 saw fortunate change for GHNL. The company sold 380 units of UD trucks in FY14 as against 226 units in the year before. Similarly, the firm also sold 52 of Dongfeng vehicles, which were imported in CBU form, as against 9 units of CBU sales in the previous year. According to the director's report of FY14, the company had already received order of 500 UD trucks in addition to the normal sales.
Against a plant capacity of 6000 vehicles (on single shift basis) at its car plant, the firm assembled 803 units of Land Rover in FY14 as against 636 in 2013. Similarly, against a production capacity of 2500 buses and trucks (on single shift basis), GHNL produced 1246 units in 2014, as against 1146 units of UD and Isuzu in 2013. As a consequence of this performance, GHNL's net profit after taxes jumped to Rs 173 million in FY14 compared to Rs 10.23 million in the previous fiscal year, which enabled the firm to dole out a cash dividend 20 percent in FY14, its only payout since 2008.
The firm's performance after June 2014 has also been phenomenal. Following a 172 percent top line growth in the first quarter ending September 2014, GHNL's second quarter has also seen tremendous top line growth. According to the notice sent to the Karachi Stock Exchange, the second quarter saw top line increase by 39 percent year-on-year - taking the first half year-on-year growth to 92 percent. This sheer growth in volumetric sales helped to offset the hit on gross margins. According to GHNL's director's reports for the half year ending December 2014, sales of trucks, including UD trucks, increased substantially over last year, whereas earnings from contract assembly also improved over last year.
FUTURE OUTLOOK
GHNL's fully owned firm Ghandara Dongfeng plans to roll out 6 models of Dongfeng trucks, where pilot production of four of those models have already begun and commercial production is due to start in the next months, according to company sources. Pilot production for the remaining two models is due to start by the end of current fiscal year.
According to the firm's first half director's reports, "the difference in selling price of Dongfeng vehicles as compared to Japanese models will help Dongfeng acquire significant share of the market of heavy duty and light commercial vehicles," which is probably why the company expects to sell about 600 trucks in total by June 2015, according to company sources.
With army operation against the militancy likely to continue, the demand for trucks and Land Rovers will keep GHNL's contract assembly running for a considerable future. Also, if the firm does indeed manage to start producing Nissan's and/or a certain European brand's passenger cars - an option which is currently exploring, according to company sources - then there will be even more reasons to be excited to read through GHNL's financial reports.

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GHNL - Condensed P & L

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                                        2QFY15                                   1HFY15

                       Rs (mn)           YoY           QoQ       Rs (mn)            YoY

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Revenue                   822.8           39%          -22%      1,880.60           92%

Cost of sales             706.9           43%          -22%      1,610.40           95%

Gross profit              115.9           19%          -25%         270.2           73%

Gross margin              14.09% down 241 bps   down 49 bps        14.37%  down 154 bps

Distribution cost          10.5          151%           26%          18.7          126%

Admin expense              48.5           58%           50%          80.8           33%

Other income                8.9          119%          200%          11.9           95%

Other expense               2.9           12%          -50%           8.7          235%

Finance cost               25.9           47%          -14%          55.9           36%

Profit after taxation      35.9           18%          -22%          79.7          173%

Net margin                 4.36%    no change    dow 79 bps          4.24%   up 127 bps

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