Panther Tyres Limited (PSX: PTL) was incorporated in Pakistan as a private limited company in 1983 and was converted into a public limited company in 2003. The principal activity of the company is the manufacturing and sale of tires and tubes for vehicles.

Pattern of Shareholding

As of June 30, 2023, PTL has a total of 168 million shares outstanding which are held by 3955 shareholders. Directors, CEOs, their spouses, and minor children have the majority stake of 75.22 percent in the company followed by the local general public holding 15.66 percent shares of PTL. Insurance companies have a 3.92 percent stake in the company while Modarabas & Mutual Funds hold 2.6 percent shares. The remaining shares are held by other categories of shareholders.

Financial Performance (2021-23)

PTL’s topline has been following an upward trajectory over the period under consideration, however, its bottom line, after registering a staggering year-on-year growth in 2021, posted a decline in the subsequent years. PTL’s margins also posted their optimum high level in 2021 followed by a plunge in 2022. In 2023, gross and operating margins rebounded while net margins continued to slide. The detailed performance review of the period under consideration is given below.

In 2021, PTL’s net sales grew by 39.86 percent year-on-year which came on the back of superior sales to both OEMs and local and export replacement markets. During the year, the company’s export sales grew by 54 percent year-on-year as the company tapped new geographical markets and added new products to its sales mix. In 2020, the company launched a truck bus bias tire (TBB), and in 2021 the company launched the largest and the heaviest tire in the OTR category. As of 2021, PTL exported motorcycles, tractors, rickshaws, LCVs, trucks, and bus tire tubes to 12 countries across the globe. Export sales constituted 8.3 percent of PTL’s sales mix in 2021 versus 7.6 percent in the previous year. The company operated at an average capacity of 89 percent in 2021. However, to meet the rising demand the company undertook major expansion plans, particularly in the tractor, TBB, and OTR segments. The cost of sales grew by 38.59 percent in 2021. Besides implementing cost control measures and achieving operational efficiency, the company passed on the impact of cost hike to its consumers, resulting in 47.33 percent year-on-year growth in gross profit in 2021 with GP margin inching up from 14.48 percent in 2020 to 15.25 percent in 2021. Distribution expenses mounted by 40.16 percent in 2021 on account of increased spending on marketing and advertising to enhance the company’s brand equity. Administrative expense ticked up by 13.47 percent in 2021 due to increased payroll expense as PTL enhanced its workforce from 2493 employees in 2020 to 3038 employees in 2021.193.3 percent year-on-year surge in other expenses in 2021was the result of hefty provisioning for WWF and WPPF. Another expense was partially offset by 550.37 percent higher other income registered by PTL in 2021. This was due to grant income on the SBP refinance scheme, elevated profit on TDRs, and higher gain on the sale of property, plant, and equipment in 2021. Operating profit rebounded by 58.29 percent in 2021 with OP margin rising up from 8.44 percent in 2020 to 9.56 percent in 2021. PTL was able to cut down its finance cost by 45.15 percent in 2021 due to monetary easing. While the company’s outstanding liabilities considerably mounted during the year, the issuance of shares during the year resulted in a gearing ratio of 17 percent in 2021 versus 18 percent in the previous year. Net profit grew by 283 percent in 2021 to clock in at Rs.851.26 million with EPS of Rs.5.07 versus EPS of Rs.2.52 in 2020. NP margin climbed up from 2.17 percent in 2020 to 5.25 percent in 2021.

In 2022, PTL registered a 26.28 percent year-on-year rise in its topline on the back of improved performance in both OEM and replacement markets. Export sales posted 38 percent year-on-year growth in 2022, standing at 9.1 percent of PTL’s sales mix. Cost of sales hiked by 32.29 percent year-on-year in 2022 due to a spike in the price of imported raw materials which was further exacerbated by Pak Rupee depreciation and elevated energy prices. Gross profit slid by 7.69 percent in 2022 with GP margin falling down to 11.15 percent. Distribution expenses magnified by 18.31 percent in 2022 due to export expenses, travel & transport charges as well as payroll expense. Due to continuous expansion, the company hired new employees, taking the tally to 3167 employees in 2022. This resulted in higher payroll expenses which pushed the administrative expense up by 22.56 percent in 2022. A considerable cut in profit-related provisioning resulted in a 24.15 percent dip in other expenses in 2022. Other income built up by 355.96 percent in 2022, offsetting other expenses by a huge margin. Robust other income was due to higher profit on TDRs, the impact of IFRS-9 on directors’ loans, and grant income on TERF for the import of plant & machinery. PTL registered a 12.55 percent thinner operating profit in 2022 with an OP margin of 6.62 percent – the lowest during the period under consideration. Finance costs escalated by 98 percent in 2022 due to a higher discount rate coupled with huge borrowings obtained by the company under TERF/LTFF arrangements for financing the import of machinery and also under working capital arrangements. The gearing ratio surged to 25 percent in 2022. PTL registered a 46.26 percent downtick in its net profit in 2022 which clocked in at Rs.457.457 million with EPS of Rs.2.72 and NP margin of 2.236 percent.

Amid lower sales to OEMs due to depressed economic and political outlook, shrunken pockets of consumers, and import restrictions, topline growth of 4.79 percent registered by PTL in 2023 came on the back of local and export replacement market sales which comprises retailers, wholesalers, and distributors. The company improved its export sales by 67.88 percent year-on-year in 2021 with the addition of new countries and new products in its export portfolio. PTL’s export market comprised of 14 countries in 2023. Export sales stood at 14.57 percent of the company’s sales mix in 2023. Growing share of export sales, Pak Rupee depreciation, and upward revision in prices resulted in a 36.27 percent year-on-year enhancement in gross profit in 2023 with GP margin climbing up to 14.5 percent. 35.53 percent higher distribution expense incurred by the company in 2023 was on account of increased marketing and branding expenditure to enhance its penetration in the local and export markets. Administrative expense inched up by 4.10 percent in 2023 due to higher payroll expense although the company streamlined its workforce to 2941 employees. 83.42 percent taller other expenses in 2023 was due to unwinding of directors’ loan although PTL considerably slashed its profit-related provisioning during the year. Other income shrank by 91.27 percent in 2023 due to the high-base effect as the company recorded grant income on TERF as well as the impact of discounting of IFRS-9 on directors’ loans in 2023. Operating profit improved by 25.12 percent in 2023 with OP margin picking up to 7.9 percent. Finance costs surged by 61.35 percent in 2023 due to monetary tightening. During the year, the company implemented financial discipline across its value chain which greatly reduced working capital requirements. The gearing ratio stayed intact at 25 percent in 2023. Net profit tumbled by 5.39 percent to clock in at Rs.432.793 million with EPS of Rs.2.58 and NP margin of 2.02 percent.

Recent Performance (9MFY24)

PTL posted 51 percent year-on-year growth in its topline in 9MFY24 on the back of improved performance across categories – OEM, export, and replacement markets. Operational efficiency and periodic price increases resulted in a 79.82 percent improvement in gross profit during 9MFY24 with GP margin rising from 12.59 percent in 9MFY23 to 14.98 percent in 9MFY24. 72.66 percent higher distribution expense was the effect of increased spending on brand equity. Administrative expenses inched up by 9.1 percent in line with inflation. 7.66 percent higher other expenses during 9MFY24 may be the result of an uptick in profit-related provisioning. It was offset by 27.93 percent higher other income recorded by PTL in 2023. Operating profit strengthened by 106.56 percent during 9MFY24 with OP margin clocking in at 8.83 percent versus 6.45 percent during the same period last year. Increased utilization of working capital lines coupled with monetary tightening pushed up finance costs by 37.68 percent during 9MFY24. Net profit picked up by 443.12 percent during 9MFY24 with EPS of Rs.3.27 versus EPS of Rs.0.60 recorded during 9MFY23. NP margin climbed up from 0.713 percent during 9MFY23 to 2.56 percent during 9MFY24.

Future Outlook

The relative stability of local currency, downtick in inflation, and downward revision of discount rate – all bode well for the automobile industry. However, the imposition of WHT on ex-factory price rather than engine capacity will be unfavorable for the OEM industry.