Baluchistan Wheels Limited

Baluchistan Wheels Limited (PSX: BHWL) was setup in 1980 for the purpose of manufacturing steel wheels for automobiles in technical collaboration with GKN Sankey Limited of United Kingdom. The plant of the company is located in industrial zone of Hub and has the capacity to manufacture diverse range of wheels for passenger cars, commercial vehicles, agricultural tractors and 4x4 vehicles. The company is ISO-9002 certified by AIB Vincotte of Belgium. The company is also a member of European Tyre and Rim technical Organization.
Baluchistan Wheels is a prominent supplier to automobile manufacturers of Pakistan and its customers include Pak Suzuki, Indus Motors, Honda Atlas Cars, Hinopak Motors, Ghandhara Nissan, Al-Ghazi Tractors and Millat Tractors.
Historical Performance Over the last 5 years, the performance of the company has been stable. The revenue number has been stagnant. Highest sales were achieved in 2012. The gross margins of the company have averaged around 17 percent while net margin average is around 6.9 percent. In 2016, both gross and net margins achieved their peak as the company took advantage of the decline in global commodity prices which have now been adjusted in their selling price.
The company has been running at optimum capacity since the last two years. There was significant drop in plant utilization during 2013 and 2014 because overall stagnancy in the industry.
1HFY17 Snapshot During the first half of financial year 2017, the company's revenue has gone down by 11% largely due to price reductions. The gross profit of the company is also down by 46% .Earnings per share of the company is also down by almost 70 percent compared to the same period last year.
Competition is tightening within this sector and the company's financials are feeling the heat. Although overall sales of cars, tractors and buses has increased but parts manufacturers have also increased capacities and are now fighting for market share. The company is already operating at optimum capacity so nothing more can be squeezed from this area. However, capacity expansion and overall efficiency improvement can be made.
Share Price Performance The stock price of Baluchistan Wheels (PSX: BWHL) over the last one year has outperformed the benchmark KSE-100 index largely due to the overall optimism in the auto sector. The whole sector has had a dream because of record auto sales. The tractor sales have also picked up which has made sure that parts suppliers operate at full capacity.
Price to earnings multiple of the sector has also gone up in light of the recent developments and growth. On average the stocks are trading at 15x P/E.
Shareholding Pattern Majority of the shareholding of the company is held by the directors. Millat Tractor (PSX: MTL) being an associated company holds 9.6 percent of the shareholding. Institution wise National Investment Trust (NIT) has 10.5 percent holding in the company. Mutual funds and insurance companies hold about 21 percent of the shareholding.
The general public holds about 24 percent shares of the company. The company is very closely held as there is very little trading volume on the exchange.
Future Outlook With the announcement of Auto Development Policy and intention of new automakers to enter the Pakistan market will have positive impact on the company.
Domestic demand for cars is going up each year and existing automakers are also increasing their capacity. Being one of the prime suppliers, the company is set to benefit from all avenues. To take full advantage of the situation, the company needs to invest in production capacity and plant efficiency.

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Baluchistan Wheels HYFY17 Snapshot

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PKR ('000)            HYFY17      HYFY16      YoY

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Net Sales            673,484     744,787     -11%

Cost of Sales        555,957     572,824      -3%

Gross Profit         117,527     171,963     -46%

Distribution Costs    20,374      16,640      18%

Admin expenses        40,895      39,939       2%

Other charges          5,587       8,943     -60%

Finance cost             723         327      55%

Profit before tax     63,514     112,689     -77%

Taxation              16,258      32,831    -102%

Net Income            47,256      79,858     -69%

EPS                     3.54        5.99     -69%

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Source: Company Accounts

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Pattern of Shareholding (As of Dec 31, 2015)

Shareholders with more than 5% shareholding

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Mr. Muhammad Siddique Misri                         2,646,410      19.80%

Mr. Razak Bengali                                   1,407,971      10.60%

CDC-Trustee National Investment (Unit) Trust        1,406,160      10.50%

Millat Tractors Limited                             1,282,825       9.60%

Mr. Muhammad Irfan Ghani                            1,249,050       9.40%

National Bank of Pakistan                             684,357       5.10%

Financial and Insurance Companies                   2,875,696      21.60%

Foreign Shareholding                                   65,186       0.50%

General Public & Others                             3,231,410      24.20%

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