Ghandhara Industries Limited was incorporated in Pakistan in 1963. The company is engaged in the assembly, progressive manufacturing and sale of Isuzu trucks, buses and pick-ups.

Pattern of Shareholding

As of June 30, 2023, GHNI has a total of 42.609 million shares outstanding which are held by 7925 shareholders. Associated companies, undertaking and related parties have the major stake of 63.95 percent in the company followed by local general public holding 24.3 percent shares. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-23)

GHNI’s topline posted year-on-year growth only in 2021 and 2022 while the remaining years witnessed decline in net sales. Its bottomline drastically fell in 2019 followed by an even enormous decline in 2020 which culminated into net loss. GHNI’s bottomline recovered in 2021 and 2022 only to slump again in 2023. Its margins followed a downward journey until 2020 and then rebounded in 2021. In 2022, GHNI’s margins tumbled again. In 2023, gross and operating margins inched up while net margins continued to erode (see the graph of profitability ratios). The detailed performance review of each of the years under consideration is given below.

In 2019, GHNI’s topline registered 17 percent year-on-year fall. During the year, Pakistan’s truck and bus industry also witnessed a sharp 33 percent year-on-year slump in sales volume which stood at 6763 units in 2019. This was on account of slow progress of CPEC, higher international steel prices, weaker Pak Rupee and halt on government spending in 2019. In line with the industry’s trend, GHNI also sold 3018 units of trucks and buses in 2019, down 25 percent year-on-year. However, on the positive front, the company diversified its portfolio and launched into pick-up trucks “D-MAX” in 2019. The company sold 391 units of its pick-up trucks in 2019. Due to lower demand and production of trucks and buses, cost of sales slid by 10 percent year-on-year in 2019. This resulted in 49 percent slide in gross profit with GP margin slipping from 18.5 percent in 2018 to 11.5 percent in 2019. Distribution and administrative expense also shrank by 8 percent and 23 percent respectively in 2019. This was on account of lower sales commission as well as lower payroll expense respectively in 2019. GHNI also trimmed its workforce from 738 employees in 2018 to 611 employees in 2019 due to curtailed operations on the back of sluggish demand. Operating profit eroded by 59 percent year-on-year in 2019 with OP margin narrowing down from 13 percent in 2018 to 6.4 percent in 2019. Finance cost magnified by 238 percent year-on- year in 2019 on account of higher discount rate and increased borrowings particularly to finance imported merchandise. As a consequence, net profit contracted by 96 percent year-on-year in 2019 to clock in at Rs.59.95 million with EPS of Rs.1.41 versus Rs.31.98 in 2018. NP margin also drastically dropped from 8.1 percent in 2018 to 0.4 percent in 2019.

The truck and bus industry which was already grappling against lackluster demand due to sluggish economic activity, exorbitant prices of raw materials in international, Pak Rupee depreciation, high indigenous inflation and elevated finance cost was hit hard by COVID-19 in 2020. This further put a dent on the industry’s sales volume which fell by 46 percent year-on-year in 2020 to clock in at 3647 units. GHNI sold 1700 units of trucks and buses in 2020, down 44 percent year-on-year. Conversely, sales volume of its newly launched pick-up trucks improved by 68 percent year-on-year to clock in at 656 units. GHNI’s topline nosedived by 15 percent year-on-year in 2020; however, its cost couldn’t fall by the similar magnitude due to rising cost of raw materials and Pak Rupee depreciation. As a consequence, gross profit thinned down by 57 percent year-on-year in 2020 with GP margin inching down to 5.9 percent. Distribution expense declined by 8 percent year-on-year in 2020 on account of lower sales commission incurred during the year. Conversely, administrative expense picked up by 2 percent in 2020 due to higher payroll expense as number of employees increased to 621 in 2020. GHNI registered operating loss of Rs.41.49 million in 2020. Its financial performance was further exacerbated by 29 percent year-on- year hike in finance cost due to rising discount rate until March 2020 coupled with increased borrowings obtained during the year. This translated into net loss of Rs.1282.88 million in 2020 with loss per share of Rs.30.11.

In 2021, the truck and bus industry thrived and registered 19 percent year-on-year rise in its sales volume which clocked in at 4347 units. As the overall business environment began to gain momentum owing to ease of lockdown, strengthening of Pak Rupee as well as various economic stimulus packages initiated by the government, customers regained their lost confidence and began to invest in the automobile industry. During the year, GHNI sold 2020 units of trucks and buses, up19 percent year-on-year. Conversely, sales volume of pick-up trucks fell by 52 percent year-on-year to clock in at 316 units in 2021. This resulted in 27 percent year-on-year escalation in GHNI’s topline in 2021. Cost of sales grew by 16 percent year-on-year in 2021 due to Pak Rupee appreciation. Stronger local currency coupled with upward revision in the prices, GHNI’s gross profit elevated by 200 percent in 2021 with GP margin jumping up to 13.8 percent. Distribution expense surged by 15 percent in 2021 mainly on account of higher salaries as well as a considerable hike in late delivery charges. Administrative expense also escalated by 30 percent in 2021 due to higher payroll expense as number of employees grew to 681 in 2021. Higher scrap sales as well as profit on saving accounts and term deposits drove other income up by a massive 244 percent in 2021. However, it was largely offset by 489 percent year-on-year spike in other expense due to higher profit related provisioning as well as provision for doubtful debts, deposits and advances in 2021. GHNI was able to recover from operating losses in 2021 and posted a robust operating profit of Rs.1204.28 million. Finance cost also gave breather in 2021 as it contracted by 52 percent year-on-year due to lower discount rate. GHNI posted a net profit of Rs.604.21 million in 2021 with EPS of Rs.14.18 and NP margin of 4 percent.

In 2022, GHNI’s topline registered a staggering 62 percent year-on-year escalation. This was backed by both price revisions as well as improved volumes. During the year, the company sold 3016 units of trucks and buses, up 49 percent year-on-year. The off-take of pick-up trucks also grew by 50 percent year-on- year to clock in at 473 units in 2022. The sales volume of the overall truck and bus industry also boasted 49 percent year-on-year rebound to clock in at 6498 units in 2022. This was on account of bullish trend prevailing in the local economy in the first three quarters of 2022. Cost of sales hiked by 65 percent year- on-year in 2022 due to steep depreciation of Pak Rupee as well as spike in commodity prices. Gross profit grew by 43 percent year-on-year in 2022; however GP margin marched down to 12.2 percent. The company was able to maintain its administrative expense at the last year’s level as the number of employees slumped to 657 in 2022. Conversely, distribution expense mounted by 69 percent year-on- year in 2022 on account of massive hike in sales commission. Operating profit improved by 32 percent year-on-year in 2022, yet, OP margin plunged to 6.6 percent. Despite monetary tightening, GHNI was able to cut back its finance cost by 3 percent in 2022 due to efficient usage of its borrowing lines. As a result, its net profit rose up by 21 percent year-on-year in 2022 to clock in at Rs.728.50 million with EPS of Rs.17.10. NP margin ticked down to 3 percent in 2022.

The economic and political upheaval that began in the last quarter of 2022, aggravated in 2023. High inflation, Pak Rupee depreciation, exorbitant commodity prices, import restrictions and hike in energy tariff and discount rate took its toll on the operational performance of businesses besides shrinking the pockets of consumers. The trucks and buses industry also suffered due to a widespread slowdown in economic activity. The overall industry sales narrowed down by 41 percent year-on-year in 2023 to clock in at 3836 units. GHNI’s sales volume massively declined to clock in at 1600 units of trucks and buses, down 47 percent year-on-year and 194 units of pick-up trucks, down 59 percent year-on-year in 2022. Gross profit plummeted by 22 percent year-on-year in 2023, however, GHNI was able to drive up its GP margin to 15.8 percent by passing on the onus of cost hike to its consumers. Distribution expense dwindled by 4 percent year-on-year due to lower payroll expense. Administrative expense inched up by 5 percent year-on-year in 2023 due to higher repair & maintenance, utility charges as well as travelling and conveyance charges. Operating profit dropped by 25 percent year-on-year in 2023, however, a check on operating expense resulted in a better OP margin of 8.2 percent. Unprecedented level of discount rate resulted in 70 percent higher finance cost incurred in 2023. This translated into 75 percent thinner bottomline in 2023. Net profit clocked in at Rs.179.42 million in 2023 with EPS of Rs.4.21 and NP margin of 1.2 percent.

Recent Performance (1QFY24)

With widespread demand suppression and economic slowdown, trucks and buses industry saw no improvement in 1QFY24. According to the data released by PAMA, the overall sales of trucks and buses slowed down by 45 percent year-on-year in 1QFY24 to clock in at 547 units. In line with the industry’s trend, GHNI’s sales volume also shrank by 59 percent during 1QFY24. This translated into 40 percent thinner topline of GHNI in 1QFY24. Cost of sales nosedived by 43 percent year-on-year in 1QFY24. Although gross profit contracted by 16 percent year-on-year in 1QFY24, the company was able to improve its GP margin from 12.7 percent in 1QFY23 to 17.6 percent in 1QFY24. Lower sales volume also resulted in 17 percent lesser distribution expense in 1QFY24, however, administrative expense hiked by 13 percent during the period supposedly on account of higher inflation which pushed up the labor cost as well as utility charges. Operating profit slid by 14 percent year-on-year in 1QFY24, however, OP margin improved from 7 percent in 1QFY23 to 10 percent in 1QFY24. GHNI trimmed its finance cost by 22 percent in 1QFY24 despite high discount rate. This was done by lowering the short-term borrowings in 1QFY24. Net profit marched down by 23 percent year-on-year in 1QFY24 to clock in at Rs.61.60 million with EPS of Rs.1.45 versus Rs.1.88 in 1QFY23. NP margin improved from 1.9 percent in 1QFY23 to 2.4 percent in 1QFY24.

Future Outlook

With the ease of import restriction and the recent strengthening of the Pak Rupee, the company may be able to reduce its cost, however, demand destruction due to almost no government spending on development projects and a widespread slowdown of the economy may continue to take its toll on the GHNI’s off-take.