Agriautos Industries Limited is a public limited company incorporated in 1981 and quoted on the Karachi Stock Exchange. The company manufactures automotive components.
Its product range covers both original equipment manufacturers (OEM) and after market. It manufactures products such as shock absorbers and struts, pipe forks, cylinder sleeves, gaskets, camshafts, McPherson assembly, door locks and hinges and steering box. The company follows international standards that is B.S.S., S.A.E, ASTM, JIS, ISO & TS-16949, as the basis of quality control programme. Agriautos is a part of the House of Habib Group.
ANALYSIS OF FINANCIAL PERFORMANCE, JUNE'03-DECEMBER'07:
The profitability of the company showed a consistent trend. Sales have been increasing throughout the years with the increasing cost of sales. The turnover in the six months ending 2007 was almost half the level in June 2007. This is a positive indication that the company's turnover is likely to reach at least the same level as in June 2007.
The auto sector after being bullish for the last 4-5 years is showing some signs of slowdown due to prevailing political unrest, stringent conditions put forth by the banks and leasing companies on auto related financing, increased mark-up rates and the imposition of 2.5% withholding tax on locally manufactured vehicles. As a result, the sales have slightly declined although the figure for the period under review shows an increase of about 8% over the same period last year.
Agriautos has revamped its distribution network with strong focus on brand equity, end-user contacts, promotion, quality and most importantly creating value for the customers. As a result, the distribution costs have emerged as a significant portion of the expenses of the company, affecting its profits. The distribution costs have increased in the recent years due to provision for warranty claims, establishment of Europe sales office, and increase in freight cost due to higher oil prices.
Cost of sales show increasing sings, as they are already more than half of the level in June 2007. The gross profit margin is likely to increase due to higher turnover. However, the profit after tax of the period under consideration marginally declined as compared to the same period last year. This decline resulted from increase in the custom duty of certain inputs that could not be offset through price increase due to the stiff resistance stance by the auto assemblers (OEMs). The OEMs put forth the plea that their enhanced volumes would enable the vendor to bear the additional cost impact. The impact of this increase to some extent was buffered through the resourcing of supplies, cost controls and stable foreign exchange. Though the company earned income through much of its prudent investments, these could little nullify the effect of higher expenses.
The company has also been upgrading of its manufacturing equipment and has added new machines to expand its production line. It has also started the work on setting up of a sheet metal press shop project to augment the company's sales in future.
The liquidity has increased over the previous years, indicating a better ability of the firm to meet its upcoming obligations. Both the ratios have shown a rising trend. The inventories of the company have increased owing to higher demand for vehicles especially locally produced. However, as the demand shows signs of being subdued, this may affect its inventory levels adversely if not utilized and managed efficiently. As Agriautos has upgraded its production line, this has meant better conversion of inventory into auto parts. The receivables of the company have increased quite rapidly by almost twice their level in June 2007. This spontaneously generated asset may be expected with higher sales. However, the firm may look into its credit policy.
The short-term borrowings also increased. These are mainly running finances that are secured against the inventories. So a higher level of inventory may secure the firm in the face of such borrowings, however, the level of inventories need to be monitored to avoid an unnecessary build up.
The debt ratios of the company have declined quite sharply over the years. This signifies a shift from financial leverage to become equity financed. The performance of the period under review is almost at par with that in June 2007.
The liabilities against assets under lease emerged only in 2006 and declined in 2007 as the company has retired this major chunk of its long-term debt. The current liabilities also declined from their value in 2006 by 17.5%. However, the current liabilities in the six months ending December 2007 increased very slightly from June 2007. This increase was attributed to an increase in the company's trade payables, accrued mark up and in particular the short-term borrowings.
The assets and the equity of the company have been increasing throughout the period under review. The increase in assets have been led by rises in inventories, plant and machinery, trade debts and both short and long term investments of Agriautos. The enlarging total reserves have given rise to a higher equity portion of the total assets.
The TIE ratio peaked in 2004 on account of augmented earnings before taxes and interest and a fall in financial charges. The gross profit doubled in 2004 without any distribution costs but with a two-fold increase in operating income through investments. Since then the TIE ratio has been declining due to enhanced financial costs.
The assets of the company have been managed almost in a consistent manner. The operating cycle dipped in 2004, increasing afterwards. This indicates that the efficiency to convert inventory into sales of auto parts rose in 2004 but thereafter decreased, hovering about a similar value. The sales of the company though have been increasing, but hindered by the unethical practices prevailing in the after market. The operating cycle of the company shows a major increase. This may be indicative of subdued demand in the country's auto sector. This has led to a higher inventory level of the firm.
The sale to equity ratio of the company has decreased due a greater than proportionate increase in the equity of the company than its sales. Same can be said for its total asset turnover ratio. The short-term investments of the firm are in Musharika certificates and term deposit receipts that have an expected profit rate of about 9-10%. These will mature in March 2008. Therefore, the company is required to make such prudent investments further in the future to safe itself against risks.
The market value of the company has increased quite sharply over the period under analysis. Better profitability trend of the company has stimulated a rising pattern in earnings per share and dividend per share. Moreover, the price value per share of the company has been increasing 1.5 to 2 times almost every year. This indicates the investors' confidence in the company. Together with this price appreciation, the company has been consistently declaring dividends every year from 2003 up to date.
FUTURE OUTLOOK:
The recent data shows that after experiencing a double digit growth since last seven years, cars sales volume now start showing downward trend and cars sales volume declined 0.1% to 70.35k units in 5mths'08. The month of Dec'07 showed very disappointing figures of cars sales and cars sales volume plunged 36.2% to 8,414 units in Dec'07 from 13,178 units in Nov'07. LCV & SUV sales volume also declined significantly 17.3%. Increase in car prices due to imposition of 1% special Excise Duty and 2.5% withholding tax in budget 2007-08 and expensive lease financing due to higher interest rates, reluctance of the banks to provide auto loans due to higher default rates and tightening of loan documents by the banks were the major factors behind this slump in cars sales volume. Fewer working days during December due to political unrest in the country also contributed towards the month's poor performance of cars sales.
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HY'08 HY'07 Chg.(%) HY'08 HY'07 Chg.(%)
Production Sales
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Cars 84,172 84,261 -0.1% 78,759 82,287 -4.3%
Tractors 24,857 25,054 -0.8% 24,930 24,660 1.1%
Trucks 1,836 2,327 -21.1% 2,006 2,201 -8.9%
Bus 532 462 15.2% 555 455 22.0%
LCV's 10,119 10,557 -4.1% 9,674 10,045 -3.7%
Motorcycle 297,719 225,285 32.2% 299,063 226,031 32.3%
Total 419,235 347,946 20.5% 414,987 345,679 20.0%
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During HY'08, cars sales volume also declined 4.3% to 78,759 units from 82,287 units in the corresponding period last year. However, despite poor performance of Cars, Truck and LCV segments, overall automobile sales and production showed a growth of about 20.0% during HY'08 over HY'07 due to double digits growth in motorcycle and bus segments.
Motorcycles and the bus segments represent an opportunity for the company to increase its sales. As the demand for cars is likely to decline further in the near future, the company should plan its production accordingly. The setting up of a sheet metal press shop by the company would assist in increasing the sales of the firm.
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BALANCE SHEET
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2003 2004 2005 2006 2007 Half Yr.2007
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ASSETS
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Non Current Assets
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Property, plant & equipment 81,330 77,411 90,647 127,109 152,633 199,846
Long term investment 0 0 0 75,000 150,000 180,000
Long term deposits 1,618 1,381 1,356 3,309 3,786 3,930
82,948 78,792 92,003 205,418 306,419 383,776
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Current Assets
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Stores, spares & loose tools 6,287 10,958 13,867 29,871 34,971 35,859
Stock in trade 117,948 151,460 188,941 312,497 310,054 348,757
Trade debts 75,805 109,525 157,116 156,768 222,777 240,720
Loans, deposits, adv. & receivables 21,516 78,521 8,441 7,414 5,082 11,682
Accrued mark up 0 0 1,669 2,818 2,672 2,089
Short term investments 0 85,000 200,145 277,920 275,934 177,113
Taxation-net 0 0 4,766 0 0 12,114
Cash & bank balances 3,066 52,773 26,957 35,301 49,299 52,323
224,622 488,237 601,902 822,589 900,789 880,657
TOTAL ASSETS 307,570 567,029 693,905 1,028,007 1,207,208 1,264,433
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EQUITY & LIABILITIES
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Share Capital and Reserves
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Authorized capital 200,000 200,000 200,000 200,000 200,000 200,000
Issued, subscribed and paid-up 120,000 120,000 120,000 120,000 120,000 120,000
Reserves 70,776 213,604 466,153 710,554 920,385 976,716
190,776 333,604 586,153 830,554 1,040,385 1,096,716
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Non Current Liabilities
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Liabilities against assets
subject to finance 0 0 0 11,802 8,639 6,832
Deferred taxation 4,069 3,461 5,411 7,619 11,441 11,551
4,069 3,461 5,411 19,421 20,080 18,383
Current Liabilities
Trade and other payables 1,883 2,446 96,848 153,050 131,050 133,614
Accrued mark up 52,293 89,361 60 72 16 210
Short term borrowings 1,177 840 2,022 0 0 6,485
Current portion of
liabilities/finance lease 372 0 0 5,233 7,283 7,487
Taxation-net 39,000 101,317 0 16,295 956 0
Sales tax payable 0 0 3,411 3,382 7,438 1,538
Proposed dividend 18,000 36,000 0 0 0 0
112,725 229,964 102,341 178,032 146,743 149,334
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Total Liabilities 116,794 233,425 107,752 197,453 166,823 167,717
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TOTAL EQUITY & LIABILTIES 307,570 567,029 693,905 1,028,007 1,207,208 1,264,433
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INCOME STATEMENT
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2003 2004 2005 2006 2007 Half Yr.2007
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Turnover 695,625 1,281,054 1,454,415 1,763,391 1,980,459 995,434
Cost of sales 545,981 937,410 1,094,318 1,230,750 1,443,887 741,204
Gross profit 149,644 343,644 360,097 532,641 536,572 254,230
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Distribution cost 0 0 17,304 24,885 29,944 16,513
Administration & general expenses 31,421 43,392 19,503 27,572 34,469 18,046
Other operating income 120,071 301,926 -12,466 -18,198 -33,792 12,301
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Finance costs 5,576 478 542 1,116 2,456 1,136
Other Charges 8,128 22,123 18,672 36,578 37,329 17,308
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Profit before taxation 106,367 279,325 316,542 460,688 466,166 213,528
Taxation 39,488 100,497 64,138 159,062 173,059 74,376
Profit after taxation 66,897 178,828 252,404 301,626 293,107 139,152
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Earnings per share 2.79 7.45 10.52 12.57 12.21 5.80
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RATIOS
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PROFITABILITY RATIOS
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2003 2004 2005 2006 2007 Half Yr.2007
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Profit Margin 9.62% 13.96% 17.35% 17.10% 14.80% 13.98%
Gross profit margin 21.51% 26.83% 24.76% 30.21% 27.09% 25.54%
Return on Assets 21.75% 31.54% 36.37% 29.34% 24.28% 11.01%
Return on Equity 35.07% 53.60% 43.06% 36.32% 28.17% 12.69%
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LIQUIDITY RATIOS
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2003 2004 2005 2006 2007 Half Yr.2007
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Quick Ratio 0.89 1.42 3.90 2.70 3.79 3.32
Current Ratio 1.99 2.12 5.88 4.62 6.14 5.90
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ASSET MANAGEMENT RATIOS
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2003 2004 2005 2006 2007 Half Yr.2007
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Inventory Turnover(Days) 64.29 45.64 50.20 69.90 62.72 139.10
Day Sales Outstanding (Days) 39.23 30.78 38.89 32.00 40.50 87.06
Operating cycle (Days) 103.52 76.42 89.09 101.90 103.21 226.15
Total Asset Turnover 2.26 2.26 2.10 1.72 1.64 0.79
Sales/Equity 3.65 3.84 2.48 2.12 1.90 0.91
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DEBT MANAGEMENT RATIOS
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2003 2004 2005 2006 2007 Half Yr.2007
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Debt to Asset 0.38 0.41 0.16 0.19 0.14 0.13
Debt to Equity Ratio 0.61 0.70 0.18 0.24 0.16 0.15
Long Term Debt to Equity 0.02 0.01 0.01 0.02 0.02 0.02
Times Interest Earned 42.74 1259.79 573.48 413.97 178.49 204.20
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MARKET RATIOS
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2003 2004 2005 2006 2007 Half Yr.2007
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Earning per share 2.79 7.45 10.52 12.57 12.21 13.21
Price/Earnings Ratio 10.03584 7.0738255 6.08365 6.272872 9.418509 8.19454958
Dividend per share 0.36 0.73 1.47 2.46 3.46 3.46
Book value per share 0.01 0.01 0.02 0.03 0.04 0.05
No of Shares issued 24000000 24000000 24000000 24000000 24000000 24000000
Market prices(Year end) 28 52.7 64 78.85 115 108.25
Dividends 8748000 17581000 35344000 59067000 83067000 83005000
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