Bolan Castings Limited (PSX: BCL) was incorporated in Pakistan as a public limited company in 1982. It is a subsidiary of Millat Tractors Limited. BCL is engaged in the manufacturing and sale of casting for tractors and automotive parts. BCL’s production plant has the capacity to produce 16000 tons of tractor and automotive castings per year. The company has so far produced over 200 different types of castings for its wide range of customers.

Pattern of Shareholding

As of June 30, 2022, BCL has a total of 11.47 million shares outstanding which are held by 1069 shareholders. 46.26 percent of BCL’s shares are held by its holding company, Millat Tractors Limited. This is followed by general public holding 39.43 percent shares of BCL. NIT and ICP account for 4.26 percent shares of the company while Insurance companies have a representation of 2.61 percent in the outstanding share capital of BCL. Directors, their spouse and minor children hold around 2.8 percent shares of the company. The remaining shares are held by other categories of shareholders having a stake of less than 1 percent in BCL.

Historical Performance (2018-22)

BCL’s topline which was on the skids in 2019 and 2020 posted a strong rebound in 2021 and the uphill trajectory continued in 2022. However, the bottomline only posted a year-on-year growth in 2021 where it recovered from two successive years of net losses. In 2022, the bottomline once again plunged by a huge margin. The margins remained in the negative zone in 2019 and 2020, picked up in 2021 and then again tumbled in 2022. The detailed performance review of each of the years under consideration is given below.

In 2019, BCL’s revenue plunged by 34 percent year-on-year as the tractor industry witnessed a decline during the year owing to low cotton crop during the year which trimmed down the purchasing power of farmers. Upward revision in tractor prices on account of Pak Rupee depreciation, high fuel and energy charges and high discount rate also kept the farmers at bay resulting into a 37 percent decline in sales volume of BCL. In 2019, BCL sold 9646 MT of castings as against 15268 in 2018. While the cost of sales slid by 16 percent year-on-year, the company posted a gross loss of Rs.149.78 million in 2019 versus a gross profit of Rs.328.20 million in 2018. Distribution cost plunged by 16 percent year-on-year due to low freight charges. Administrative expense surged by 8 percent year-on-year due to market induced rise in salaries and wages. Other incomes grew by 40 percent year-on-year in 2019 due to scrap sales, higher return on deposit and saving accounts and also because BCL wrote back the liabilities which were no longer payable. Despite sizeable growth, other income was not significant enough to produce any positive impact on the operating results of BCL. BCL posted an operating loss of Rs.258.86 million in 2019 as against the operating profit of Rs.196.95 million in 2018. To make things even worse, finance cost multiplied by 310 percent year-on-year in 2019. While high discount rate played its due role, BCL also tremendously increased its short-term borrowings during the year to meet working capital requirements. The result was a net loss of Rs.239 million in 2019 with a loss per share of Rs.20.83 versus a net profit of Rs.133.40 million and an EPS of Rs.11.63 in 2018.

2020 proved to another sluggish year for BCL where its topline plummeted by another 12 percent year-on-year. While locust attack and water shortage in Sindh and Punjab region already took its toll on the agricultural output and had pushed down the tractor sales, the outbreak of COVID-19 made things even worse. BCL could hardly sell 7280 MT of castings in 2020, signifying a 25 percent drop in sales volume. High fuel and power charges as well as raw material charges due to depreciation of Pak Rupee didn’t let BCL post any gross profit in 2020 too. Gross loss; however, slumped by 41 percent year-on-year in 2020 to clock in at Rs. 88.13 million. Low payroll expenses and freight charges pushed both administrative and distribution expense down by 15 percent and 23 percent respectively in 2020. Other income also inched down by 38 percent year-on-year in 2020 owing to lesser scrap sales made during the year. Operating loss shrank by 30 percent year-on-year in 2020 to clock in at Rs.181.29 million. Finance cost didn’t give any respite and magnified by 53 percent year-on-year in 2020 as the company obtained long-term financing under SBP Refinance Scheme for the payment of salaries and wages. Moreover, discount rate was also high for the major part of the year except for the COVID quarter. High finance cost blew up the gross loss by 14 percent year-on-year in 2020 to clock in at Rs.271.69 million with a loss per share of Rs.23.68.

In 2021, BCL posted a robust 82 percent year-on-year growth in its topline after two gloomy years of lackluster sales and negative bottomline. In 2021, sales volume grew by 42 percent year-on-year to clock in at 10,334 MT. Good agricultural yield culminated into stronger demand for tractors which also stimulated growth in the ancillary industries. Cost of sales also grew by 49 percent year-on-year in 2021; however, increased volumes as well as prices enabled BCL to post a gross profit of Rs.303.30 million with a GP margin of 12.5 percent versus 14.6 percent in 2018. Higher freight charges drove the distribution expense up by 50 percent year-on-year in 2021 while administrative expense surged by 43 percent year-on-year on account of higher legal and professional charges and provision for impairment. BCL didn’t incur any other expense during 2019 and 2020, however, it booked Rs.13.25 million other expense in 2021 classified as WWF and WPPF. Other income multiplied by over 7 times in 2021 due to gain on curtailment and settlement of funded pension scheme, government grant income as well as greater scrap sales during the year. Despite higher expenses, BCL posted an operating profit of Rs.223.92 million in 2021 with an OP margin of 9.3 percent versus 8.6 percent in 2018. Finance cost also contracted by 33 percent year-on-year in 2021 due to discount rate cuts during the year. BCL posted a positive bottomline of Rs.132.38 million in 2021 with an NP margin of 5.5 percent against 5.8 percent in 2018 when the company last posted net profits. EPS clocked in at Rs.11.54 in 2021.

While the magnitude of growth fell, 2022 still mustered 14 percent year-on-year topline growth for BCL. However, a sneak into the numbers show that the growth came on the heels of upward price revisions while the sales volume tumbled by 11 percent to clock in at 9269 MT of castings in 2022. The cost of sales surged by 29 percent year-on-year on the back of Russia-Ukraine crisis which created supply chain impediments and higher prices of oil and other commodities. This coupled with Pak Rupee depreciation and import restrictions due to low foreign exchange reserves proved to be a double whammy for BCL as its gross profit, once again, dwindled by 29 percent year-on-year with GP margin sliding down to 7.8 percent in 2022. BCL kept a check on its distribution and administrative expense which inched down by 1 percent and 21 percent respectively owing to lesser freight, payroll expense, legal and professional charges and no impairment for provision booked during the year. Other expense shrank by 69 percent year-on-year in 2022 due to lesser provisioning for WWF and WPPF. The gain on curtailment and settlement of pension scheme which was booked last year wasn’t available this year, culminating into a 69 percent fall in other income in 2022. Operating profit slumped by 52 percent year-on-year in 2022 with OP margin falling to 3.9 percent. Finance cost nosedived by 2 percent year-on-year in 2022 despite monetary tightening. This was because the company made massive loan resettlements during the year to trim down its loan book. Net profits plummeted by 88 percent year-on-year in 2022 to clock in at Rs.15.32 with an NP margin of 0.6 percent. EPS climbed down to Rs.1.34 in 2022.

Recent Performance (9MFY23)

BCL’s topline which took an uphill flight in 2021 and 2022, once again started dwindling in 2023. Net revenue slid by 26 percent year-on-year in 9MFY23. On one hand, supply chain disruptions due to import restrictions forced the company to shut down its operation during 1HFY23, on the other hand, tamed demand due to sluggish economic activity and dwindling purchasing power also pushed the sales down. High cost of raw materials and surging fuel and power charges resulted into a drop of 44 percent in gross profit in 9MFY23. GP margin also ticked down to 5.6 percent in 9MFY23 from 7.4 percent during the same period last year. Operating expenses slid by 15 percent year-on-year in 9MFY23 despite unprecedented levels of inflation. Other income shrank by 35 percent year-on-year during the period. Operating profit clocked in at Rs.12.12 million in 9MFY23, down 82 percent year-on-year. OP margin also plunged to 0.8 percent in 9MFY23 from 3.4 percent in 9MFY23. Finance cost grew by 68 percent year-on-year in 9MFY23 due to high discount rate. BCL once again posted a net loss of Rs.63.92 million in 9MFY23 versus a net profit of Rs.2.52 million during the same period last year. BCL recorded a loss per share of Rs.5.57 in 9MFY23 versus an EPS of Rs.0.22 during 9MFY22.

Future Outlook

BCL increasing focus towards import substitution will not only keep the company immune of the steep depreciation of Pak Rupee but will also ensure smooth operations without any disruptions due to import restrictions. The cost advantage gained by the company due to import substitution will spur demand as BCL will be in the position to offer competitive prices. The ongoing quarter will decide the extent to which BCL can trim down its cost and whether or not it can close FY23 with a positive bottomline.