Gammon Pakistan Limited (PSX: GAMON) was incorporated in Pakistan as a public limited company in 1947. The principal activity of the company is the execution of civil construction works. Bibojee Services (Private) Limited is the holding company of GAMON.

Pattern of Shareholding

As of June 30, 2023, GAMON has a total of 28.266 million shares outstanding which are held by 2366 shareholders. Bibojee Services (Private) Limited has the majority shareholding of 72.06 percent in the company followed by the local general public holding 26.83 percent shares of GAMON. The remaining shares are held by other categories of shareholders.

Historical Performance (2019-23)

GAMON’s topline has been contracting over the period under consideration. Its bottom line also shrank until 2021 where it posted a net loss. The net loss slid in 2022 and in 2023 the company registered net profit. GAMON’s margins have been fluctuating over the period with its gross profit margin attaining its highest level in 2019. Conversely, operating profit and net profit margins registered their optimum values in 2023. The detailed performance review of the period under consideration is given below.

In 2019, GAMON’s contract income slid by 47.71 percent. Lesser projects undertaken during the year resulted in lower materials consumed and lesser salaries & wages paid. This resulted in a 2.41 percent stronger net contract profit in 2019 with a GP margin of 10.93 percent versus a GP margin of 5.58 percent recorded during 2018. Although the company received lesser projects in 2019, the new project of structure bridges at Old Bannu Road helped the company to maintain its net contract profitability. While the company significantly squeezed its workforce from 42 employees in 2018 to 29 employees in 2019 which reduced the payroll expense, hefty provisioning for doubtful contract receivables, provisioning for loans & advances as well as legal & professional charges drove up for general& administrative expenses by 22.33 percent in 2019. Other income weakened by 30 percent in 2019 due to lower rental income earned on investment property. Operating profit dwindled by 86.29 percent in 2019 with OP margin falling down to 1.31 percent from 5 percent in 2018. GAMON’s financial cost comprised of bank charges which fell by 80.25 percent in 2019. During the year, the company recorded 26.99 percent higher fair value gain on investment property which considerably buttressed its bottom line. Nevertheless, GAMON’s net profit slumped by 22.31 percent to clock in at Rs.40.404 million in 2019 with EPS of Rs.1.43 versus EPS of Rs.1.84 recorded during 2018. However, NP margin grew from 13.5 percent in 2018 to 20.06 percent in 2019.

In 2020, GAMON’s contract income further declined by 8.32 percent. This was on account of stressful economic conditions due to COVID-19. Contract expenditure tumbled by 3.27 percent in 2020. Net contract profit dropped by 49.45 percent in 2020 with GP margin falling down to 6.03 percent. 8.26 percent decline in general & administrative expenses in 2020 was the result of lower payroll expenses as the headcount was reduced to 21 employees. Other income fell by 6.51 percent in 2020 due to lower rental income on investment property as well as no scrap sales and gain on sale of fixed assets recorded in 2020. GAMON posted an operating loss of Rs.6.37 million in 2020. The company paid 58.46 percent higher bank charges in 2020. Fair value gain on investment property nosedived by 0.79 percent in 2020. This resulted in a 34.88 percent year-on-year plunge in net profit which clocked in at Rs.26.211 million in 2020 with EPS of Rs.0.93 and NP margin of 14.25 percent.

GAMON’s contract income plummeted by 59 percent in 2021 as the economy was still grappling against the shocks of the global pandemic. The government announced incentives and packages for the construction industry; however, GAMON strived to attain direct projects at favorable rates. While lesser projects obtained during the year resulted in significantly lower salaries expenses and material costs incurred during the year, it was partially offset by greater impairment booked on stores, spares and loose tools in 2021. Hence, contract expenditure slipped by the lower magnitude and the company registered net contract loss of Rs.23.28 million in 2021. General & administrative expenses surged by 19.38 percent in 2021 due to higher payroll expenses, hefty repair & maintenance charges, rent, rates & taxes as well as greater provisioning booked for loans & advances. Other expenses which were less than 1 million in the past years swelled by 2738 percent to clock in at Rs.17.596 million in 2021 due to bills receivable, loans & advances, retention money, and security deposit written off during the year. Other expense was conveniently offset by 193 percent stronger other income recorded in 2021. This was the result of a robust gain on the sale of obsolete fixed assets, stores & spares, higher rental income on investment property, and sundry creditors written back during the year. Operating loss mounted by 293.97 percent to clock in at Rs.25.109 million in 2021. Bank charges escalated by 9.71 percent in 2021. Fair value gain on investment property fell by 55.62 percent in 2021. GAMON registered a net loss of Rs.8.103 million in 2021 with a loss per share of Rs.0.29.

In 2022, GAMON’s contract income recorded a fall of 67.86 percent on account of political and economic uncertainty which resulted in slow disbursement of PSDP funds along with no new announcement of new projects. Contract expenditure fell by 73.49 percent in 2022, resulting in a 91.8 percent decline in net contract loss which clocked in at Rs.1.909 million. The number of employees grew from 20 in 2021 to 22 in 2022 which resulted in higher payroll expenses; however, it couldn’t drive the administrative expense up in the absence of provisioning for loans and advances. Hence, administrative expenses shrank by 34.73 percent in 2022. Other expenses escalated by 123.12 percent in 2022 due to contract assets written off during the year. Other income grew by 3.11 percent in 2022 on account of a massive rise in sundry creditors written back during the year. Rental income from investment properties also contributed in driving other income up in 2022. GAMON’s operating loss thinned down by 68.37 percent in 2022 to clock in at Rs.7.942 million. Bank charges also stayed the same at last year’s level. Fair value gain on investment property dropped by 61.26 percent in 2022. GAMON recorded a profit before tax worth Rs.1.03 million in 2022; however, tax expense of Rs.7.398 million resulted in a net loss of Rs.6.368 million, down 21.41 percent year-on-year. Loss per share stood at Rs.0.23 in 2022.

In 2023, GAMON’s topline slid by 72.56 percent due to a precarious economic and political backdrop which impeded the announcement of PSDP projects. The situation was further aggravated by heavy floods which took its toll on the infrastructure of the Southern region. While the cost of materials consumed and salaries disbursed significantly fell in 2023, higher cartage, traveling & conveyance charges were incurred during the year. This resulted in contract expenditure shrinking by a lower magnitude of 35.96 percent in 2023. Net contract loss magnified by 430.25 percent to clock in at Rs.10.126 million in 2023. General & administrative expenses inched up by 4.25 percent in 2023 which was mainly the consequence of higher rent, rates & taxes paid during the year. The company right-sized its workforce which stood at 19 employees in 2023. 91.74 percent year-on-year decline in other expenses in 2023 was due to a high base effect as a hefty amount of contract assets were written off in the previous year. Other income tapered off by 26.77 percent in 2023 mainly due to lesser sundry creditors written back during the year. GAMON posted an operating profit of Rs.1.883 million in 223 with an OP margin of 28.19 percent – the highest during the period under consideration. Fair value gain on investment property nosedived by 74.20 percent in 2023. GAMON posted a net profit of Rs.7.547 million in 2023 with EPS of Rs.0.27 and NP margin of 113.02 percent.

Recent Performance (9MFY24)

The company didn’t gain any project during the period resulting in zero contract revenue during 9MFY24. Contract expenditure also declined by 94.68 percent during the period resulting in a net contract loss of Rs.0.587 million, down 89.16 percent year-on-year. Elevated utility charges and an upsurge in inflation resulted in 21.89 percent higher administrative expenses during 9MFY24. Conversely, other expenses dropped by 53.51 percent supposedly due to lower write-offs made during the year. Other income also thinned down by 3.07 percent during 9MFY24 supposedly due to lower rental income on investment property. Operating loss shrank by 6.52 percent to clock in at Rs.1.573 million during 9MFY24. No fair value gain on investment property was recorded for the period. Net loss stood at Rs.1.587 million in 9MFY24, down 64.45 percent year-on-year. Loss per share slid from Rs.0.16 in 9MFY23 to Rs.0.06 in 9MFY24.

Future Outlook

With no sound revival in the private and public construction and infrastructure sectors in sight on account of fiscal imbalances and wavering investor confidence, the future looks challenging for GAMON. However, the company has entered into a loan agreement with Gammon Pakistan Precast (Private) Limited (GPPL) whereby the company will make a long-term investment worth Rs.90.5 million for the construction of a warehouse shed with GPPL. This will serve as a regular source of income for both the companies in future.