Ghandhara industries are engaged in manufacturing, assembling and marketing of Isuzu trucks and bus chassis. The Company is a public limited company listed on Pakistani stock exchanges. It was set up in Karachi by General Motors Overseas Distribution Corporation of USA. Later on in 1963, it was taken over by General M. Habibullah Khan Khattak and renamed as Ghandhara Industries Limited.
The Company was amongst the companies that were nationalised in 1972. After nationalisation it was named National Motors Limited. However, in 1992 Bibojee Services (Pvt) ltd acquired it under the privatisation policy and renamed it Ghandhara Industries Limited.
Products The Company is engaged in the production of different Trucks and Bus models. The product range consists of different truck models in the light and medium duty category. The Company also manufactures light commercial vehicles and bus and load body fabrication.
ISUZU's vehicles are ranked as number one, world-wide due to their reliability, design technology, efficiency and high power output. In addition over the years Company has been able to develop environmentally friendlier engines that have high combustion efficiency and low exhaust gases.
Customers The major customers of the truck and bus manufacturer are fleet owners, Pakistan's Armed Forces, civilian and paramilitary law-enforcement agencies, government and semi-government organisations, education and health institutions, etc.
Industry overview The truck and bus industries experienced a significant slowdown in FY11, compared to previous year the sales fell by over 21 percent. The slowdown in the sector was due to both supply disruption and a slowdown in demand. On the supply side, the tsunami in Japan led to a complete halt in production of some of the truck manufacturers, as facilities in Japan had suspended production of essential components.
In addition the imposition of 16 percent GST resulted in a significant increase in prices, which retarded demand. The foreign exchange losses also substantiated as the rupee yen parity worsened. Adding to their misery were the power shortages which inflated the cost of production. Manufacturers had to increase the prices to remain profitable. But the price increase made them highly price in-competitive as the Chinese truck makers were offering much lower prices.
Company's performance Revenue The overall decrease in the economic activity in the country and increase in prices of vehicles due to increasing cost of production resulted in a slowdown in the sales.
The sales of buses and trucks were lowest in FY11 compared to last couple of years. The industry wide slowdown is reflected in the revenue of the Ghandhara industries, compared to FY10 in FY11 the revenue of Ghandhara fell by 22 percent.
A 25 percent decline in total unit sales was seen in the current year compared to FY10. Segment-wise 32 percent decline was experienced in the trucks segment. Despite worst economic environment the buses segment performed well and sales surged by 19 percent.
However, the increase in bus sales did not have a sizeable impact on the overall revenue as the share of buses in the total sales mix is less than 20 percent.
Profitability The profitability of the firm declined, as the firm wasn't able to fully transfer the increase in cost to the customers. The gross margin in FY11 stood at 10.68 percent compared to 14.22 percent in FY10. The increase in raw material prices led the increase cost of sales.
The Company experienced roughly a 21 percent decrease in distribution cost in FY11 over the last year. The decrease is aligned with the decrease in the sales. The inflationary pressure and the depreciation expense, however, rose by 30 percent and inflated the overall expenses.
The Finance cost further skimmed the profitability, despite a decrease in running finances, the increase in finance against imported merchandise and increase in bank charges and commission, increased the finance cost by 2.5 percent. Resultantly the net profit fell from Rs 135 million in FY10 to Rs 7.7million in FY11, and the net margin fell from 6.5 percent in FY10 to 0.47 percent in FY11.
Operating performance/efficiency The total asset and fixed asset turnover of the company which had seen a recovery in FY10, experienced a large decline in FY11. The decline in sales and a simultaneous increase in assets resulted in a decrease in these ratios. The increase in assets of the Company was mainly led by the surge in the trade deposits and prepayments.
A decrease in debtor turnover was experienced, compared to 22.2 in FY10 the ratio fell to 12.64, showing inability of the company to collect its receivables. The average days for receivables rose from 16 days in FY10 to 29 in FY11.
The inventory turnover ratio of the firm also worsened in FY11, reflecting the deterioration in the firm's ability to convert inventory into sales. The firm, however, improved its payable's management. The number of days of payable's increased from 23 days to 36 days.
Working capital-interest rate risk and foreign exchange risks Liquidity and the foreign exchange risk are the major risks that Ghandhara is facing, the firm's receivables and payables that are exposed to such risks, in value terms stood at Rs 214million and Rs 34million on 31st June 2011.
Borrowing at variable rates to meet the working capital requirement exposes the firm to significant interest rate risk. Company's interest bearing liabilities stood at Rs 151 million on 31st June 2011.
Outlook Regardless the power shortages and economic slowdown the management is confident that the Company will be able to outperform its peers. However, the structural change (16 percent GST) on the sales of buses and trucks would have a long-term effect on the industry.
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Ghandhara Industries Limited
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2011 2010 chg
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Sales Rs mn 1631 2086 -22%
Cost of goods sold Rs mn 1457 1789 -19%
Gross profit Rs mn 174 296 -41%
PAT Rs mn 7.7 135 -94%
EPS Rs 0.36 6.36 -94%
Profitability Ratios
Gross profit margin % 10.68 14.22 -25%
Net profit margin % 0.47 6.5 -93%
Return on equity % 0.46 11.72 -96%
Turnover Ratios
Total asset turnover times 0.49 0.88 -44%
Fixed asset turnover times 1.04 1.55 -33%
Debtors turnover times 12.64 22.2 -43%
Inventory turnover times 2.08 3.3 -37%
Solvency Ratios
Current ratio 1.11 1.17 -5%
Quick ratio 0.68 0.5 36%
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