General Tyre and Rubber Company of Pakistan Limited (PSX: GTYR) is a leading player in the tyre industry and a competitive and flourishing business within the larger auto-parts sector in Pakistan. The company was set up back in 1963, established by General Tyre International Corporation (GTIC) of the United States at first, with a total capacity of only 120,000 tyres annually. In 1977, the company sold 90 percent of its shares to local investors in Pakistan, Bibojee Services Limited retaining 10 percent of the ownership. The Bibojee group continues to hold majority share in the company.
The company went into expansion in 1985 with a capacity to manufacture 600,000 tyres annually reaching current production of 2.3 million tyre sets with a capacity to produce over 3 million units.
The company supplies to more than one third of the country's tyre demand-ranging from tyres for passenger cars, light trucks, heavy trucks and buses, motorcycles, tractor front and rear tyres and rickshaw tyres catering to all the segments of the automobile market. The biggest chunks of demand come from passenger car and motorcycle companies.
The company has four market segments that it works in: Original Equipment Manufacturers (OEMs), replacement or after market, government departments or institutions and exports, particularly to Middle Eastern countries. It also sells its tyres to replacement market through more than 150 authorised dealers and distributors.
Group activities and investment
The Bibojee Group is owned by the Kuli Khattak Khan family and has stakes in textile, insurance, automobiles, construction business other than tyre and rubber. A major player in the automobile industry, Ghandhara Industries (GIL) is also owned by the group. GIL is in the business of assembly, progressive manufacturing and sale of Isuzu trucks and buses.
In FY17, Bibojee Ltd. held 27.79 percent of the shares in General Tyres, while Pak Kuwait Investment Company held 30 percent of the shares in the company.
The company has a technical service agreement with Continental AG, a top tyre manufacturer in Germany for modernisation, training of human resource and quality supply of products to end-users.
In its notice to the shareholders in April 2017, the company announced that its plans to acquire 50 acres of land for manufacturing and 20 acres for warehousing at Port Qasim were underway. This future expansion is expected to cost Rs 1.26 billion.
Operational and financial performance
General Tyre's demand is pegged to the performance of the automotive industry. The company has reasonably come this far by expanding appropriately, keeping up with the mobility of the automotive demand. With a capacity of over 3 million, the company is manufacturing around 2.3 million tyre sets that would put its capacity utilization to 76 percent, which is still low at this point.
During FY16, the company implemented the Enterprise Resource Planning (ERP) system for business applications and MIS. The system went live during 2017, but switching over from old system to new affected sales numbers resulting in underutilization. The company has been making investments into improving the efficiency of its plants and to maximize capacity utilization while keeping up with the demand. A new mixing plant was installed and started running during FY17 that helped improve operations.
Revenue has been growing consistently through the years. Diversifying in different markets, not just in one segment of the automotive industry, but nearly all the segments including cars, commercial vehicles and tractors together with its operations in the replacement market has allowed the company to continue growing. The move into the motorcycle segment will yield promising results in the coming future as motorbikes, especially locally assembled are seeing demand to sky-rocket.
The company's margins have stayed in the 20 percent range owing to much higher costs as the company's raw materials are imported from oversees' markets. Movement in prices of its main inputs, synthetic and natural rubber largely affects margins, while fluctuations in the exchange rate also hit company's costs.
While it operates within the OEM and the replacement markets (RM), the fast growing demand in former has reduced the supply to RM recently with lesser tyres available in that market. However, in the replacement market segment, the company gets hit hard by smuggled and under-invoiced tyres coming through countries including China.
During FY16, Apni Rozgar scheme of the Punjab government gave a real boost to sales of Suzuki cars that in turn pushed demand for tyres for General Tyre. Later during FY17, though Suzuki sales dropped, other OEMs picked up the demand. The sales to tractors went down as two tractor manufacturers closed down their plants during FY17, which affected sales for tractor tyres though.
Outlook and opportunities:
The automobile industry is in a whirlwind of its own and some of its winds will be caught by General Tyre, no doubt. The buying in the car segment is high-locally assembled cars cross 200,000. With cheaper financing available and new models coming up, car penetration has a huge likelihood to increase. This translates into growth for General Tyre. New car ventures are in the works including Kia and Hyundai whose plans are pretty definite for the assembly of cars and commercial vehicles.
Meanwhile, CPEC activities and commercial transportation will give rise to greater demand for tyres in the trucking and logistics industry, which has already started seeing the boom. New players are entering this space as well including Hyundai. General Tyre being a leading player for tyres is sure to get a chunk of this additional market.
Urbanization and sheer population expansion are propelling demand from the motorcycles segment as well. Moreover, growth in the agriculture sector, and government support in that sector through subsidies is propelling demand for tractors. General Tyre can see its revenues grow substantially. Already during the first quarter of FY18, revenues have grown by 28 percent.
The upcoming expansion for which land will soon be acquired bodes well for the company, ready to transition alongside the automobile industry. With the commissioning of the new mixing plant and other ancillary machinery, the company can more efficiently cater to the boost in its key market segments. However, cheap smuggled tyres will continue to pinch its market share.
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Pattern of Shareholding (as on July 30, 2017)
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Categories of Shareholders Share
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Directors and their spouse (s) and minor children 0.400%
Associated Companies 57.8%
Bibojee Services Ltd. 27.79%
Pakistan Kuwait Investment Ltd. 30.00%
Public Sector Companies and Corporations 0.660%
Banks, development finance institutions, insurance,
non-banking finance companies etc. 9.18%
EFU Life Insurance 5.55%
Mutual Funds 10.99%
Foreign Companies 2.08%
General Public 16.85%
Others 2.51%
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Total 100%
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Source: Company accounts
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General Tyre First Quarter FY18
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(mn Rs) 1QFY18 1QFY17 YoY
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Sales 2,795.5 2,181.5 28%
Cost of Sales 2,180.1 1,629.4 34%
Gross Profit 615.3 552.0 11%
Administrative 78.8 59.2 33%
Distribution costs 96.2 95.9 0%
Other operating expenses 35.0 33.3 5%
Finance cost 57.4 29.3 96%
Other income 5.7 8.9 -36%
Profit before tax 354.5 344.4 3%
Taxation 101.7 109.2 -7%
Net profit for the period 252.8 235.2 7%
Earnings per share (Rs) 4.23 3.93 8%
GP margin 22% 25% -13%
NP margin 9% 11% -16%
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Source: Company accounts
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