Agriauto Industries Limited (AGIL)

Agriauto Industries Limited (PSX: AGIL) is a public limited company incorporated in 1981 and is today, one of the leading manufacturers of components for automotive vehicles, motorcycles and agricultural tractors. The company supplies its range of products to both original equipment manufacturers (OEM) market and the replacement market.
The company's product range includes shock absorbers and struts, motorcycle shock absorber and parts, sheet metal press parts, tractor parts such as steering boxes which are produced on automatic CNC machines, and other parts such as window regulators and door hinges. Some of the major clients within the automotive assembling business include Indus Motors Company, Pak Suzuki Company, Hino Pak Motors, Millat Tractors, Dewan Farooq Motors Limited, Dawood Yamaha, Atlas Honda Limited and Sohrab Motorcycle.
Agriauto is part of the House of Habib Group, one of the largest and most diversified conglomerates in the country that has companies like Indus Motors, Thal Limited, Shabbir Tiles and Ceramics, Habib Insurance Company and Habib Metropolitan Bank under its flag. In 2012, Agriauto established a wholly owned subsidiary called Agriauto Stamping Company (Private) Limited to handle operations of stamping of sheet metal parts, sub-assembly operations, checking fixtures and jigs manufacturing primarily for automotive sector. The subsidiary commenced production in 2014.
Shareholdings and technical agreements
Over the years, Agriauto has signed on technical collaborations with various international companies and is the first company in Pakistan to acquire TS16949 certification. The production of shock absorbers and struts are done under a technical assistance agreement with KYB Corporation and Gabriel Ride Control USA.
The company also signed a technical assistance Agreement with Ogihara Thailand Company Limited for its subsidiary. Since then, this subsidiary has been running at optimum capacity and has been supplying high tensile steel material since March 2015. After commencement, four additional press parts have been added while the company is in the first phase of the die development center. The success of the subsidiary is reflected in the company's consolidated accounts.
The company's majority shares are held by foreign investors; of which Robert Finance Corporation, AG holds nearly 25 percent of the company's shares while Thal, an association company within the HOH group holds 7.35 percent of Agriauto's share. The two have voting rights to the company as at June 2017. More than 30 percent of the company's shares are held by public.
Financial and operational performance
While employees are being sent to Thailand for training in die and fixture manufacturing, Agriauto is also focused on building operational efficiency which adds to improving its processes and growth. According to its annual reports, the company follows the KAIZEN philosophy of Toyota Production System. In that, daily early morning meetings to discuss issues of quality production and take immediate countermeasures. Moreover, training on Total Productive Maintenance (TPM) are conducted by Japanese consultant each quarter to provide necessary knowledge, techniques and expertise to maintain equipment, control breakdowns and ensure safety of the operators.
Since 2015, the company has been growing with promise. Though lower cars during 2013 and 2014 led to lower profits, the recovering during FY15 came just in time. Revenues grew by 57 percent in FY15 standing at Rs 4.9 billion. Since then, revenues have grown marginally, landing at Rs 5.7 billion during FY17. Solid revenues are tied to growth in motorcycle, tractor and cars sales. The Apna Rozgar scheme and the tractor scheme both contributed to higher revenues after FY15. Tractor and motorcycle parts together constitute 20 percent of the share in the company's sales revenues. Growth in these two subjects is likely to drive demand for parts forwards. With the production of high-tensile parts, consolidated revenues grew by 26 percent between FY15 and FY17.
During FY17, the company started manufacturing fuel tanks for cars and motorcycles. Meanwhile, power window regulators and the catalytic convertor projects were initiated during FY16 and starting selling from July 2017. Diversifying into other products is likely to bode well for the company.
Margins however are the bane for Agriauto as costs still remain significantly high. Since they are dependent on imported steel, rising global steel prices have hit the company's margins adversely, especially during the past fiscal year.
Moreover, regulatory duties as well as anti-dumping duties placed by the government on steel products have also put significant pressure on the company's costs of production.
Recent operations and outlook
The company's success is teetered to local demand and sales of vehicles and as well as the imported content that goes into manufacturing. And from that perspective, Agriauto is poised to increase its market share by venturing into new products and benefit from the rising demand for cars, motorcycles and tractors.
With the new auto policy successfully being implemented; at least three players are sure to enter the vibrant automotive market in the car category and several others in the commercial vehicle segment. As it stands, Kia, Hyundai and potentially Renault are entering the market with a fleet of their models and are currently shopping for auto parts manufacturers. Being a known listed player, Agriauto is well-placed to capture a chunk of the new market size.
Meanwhile, tractors bolstered by government subsidies and benefits are on a strong growth trajectory. In 1HFY18, tractor sales grew by 54 percent. Greater sales overall reflect in the company's first quarter accounts where revenues grew by 11 percent and margins also improved to 20 percent; from 18 percent during 1HFY17.
While its fate is tied to the movement of the automotive industry, any downside in the market also affects its sales. Meanwhile, costs of raw material especially steel, additional RDs, or energy costs remain potential threats for future profitability. However, with the new plant that is supplementing its core business operations, technical agreements for new product portfolio, and potential of expanding its client base are all optimistic signs for Agriauto.
Having said that, one huge news that came last year was Agriauto placing among the five Pakistani companies in the Forbes annual ranking of best companies under $1 billion in revenue, out of a total 200 companies from across the Asia-Pacific. If nothing else, it speaks volumes of the company's growth path and motivates it to remain on the same route.

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Agriauto - Pattern of Shareholding (as on June 2017)

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Categories of Shareholders                           Share

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Directors and their spouse(s) and minor children     0.06%

Investment Companies                                 0.02%

Joint Stock Companies                                5.33%

Public Sector Companies                              0.43%

Foreign Investors                                   42.28%

Robert Finance Corporation, AG                      24.90%

Associated Companies, and related parties            7.35%

Thal Limited                                         7.35%

Banks, development finance institutions,

insurance, non-banking finance companies etc.       3.780%

Mutual Funds                                         8.33%

Individuals                                         31.00%

Co-operative societies                               0.01%

Charitable                                           0.11%

Others                                               1.02%

Total                                                 100%

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Source: Company accounts

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Agriauto: First Quarter Standalone Financials

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RS(mn)                      1QFY18   1QFY17     YoY

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Sales                        1,438    1,298     11%

Cost of Sales                1,149    1,066      8%

Gross Profit                   289      232     25%

Administrative                  54       47     15%

Distribution                    27       24     15%

Other operating expenses        18       12     53%

Finance cost                  0.76     0.80     -5%

Other income                    11      120    -91%

Profit before tax              202      270    -25%

Taxation                        60       43     41%

Net profit for the period      142      227    -38%

Earnings per share (Rs)       4.92     7.89    -38%

GP margin                      20%      18%     12%

NP margin                      10%      18%    -44%

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