Bolan Castings Limited (PSX: BCL) can rightly claim to be the leading foundry of its kind in Pakistan. It is a modern and well-equipped company and holds a dominant market share of the tractor and automotive castings. BCL started its journey from the Ministry of Production, Government of Pakistan.
The firm was incorporated in as a public limited company by Pakistan Automobile Corporation Limited (PACO). The plant was commissioned in 1986 with the assistance of Foundry Management, and Design Company, United Kingdom, and commercial production was started in 1986. In 1993, the Company was privatised and handed over to a group of management under a collaboration of Millat Tractors Limited and the employees of Bolan Castings Limited.
The primary business activity of Bolan Castings Limited is to manufactures and sells castings for tractors and automotive parts. The foundry Hub, Baluchistan is on a 100,000 square meters plot with a covered area of approximately 20.000 square meters. The plant is manufacturing tractor castings such as cylinder blocks, cylinder heads, transmission cases and truck and bus castings like brake drums and hubs with a large number of other similar castings. The plant produces more than 16,000 tons per year of tractor / automotive castings in grey and ductile iron. So far more than 200 different types of castings have been successfully developed and supplied to various customers.
Historical financial performance: It is important to note that there is a strong correlation between the performances of tractor assemblers and manufacturers and castings industry. Performance by Bolan is directly related to demand for tractors in the country. FY10 was a good year for the company because it not only achieved record production of more than 16,000 metric tons but also able to secure all time high sales of Rs 1,707 million. This achievement came through better price and higher demand from the tractor sector as well as during the period the firm also able to export some of its product.
The top line of the Bolan came under pressure during the last quarter of FY11 after showing 25 percent increase in sales from the previous year during the first three quarters of FY11.The Government of Pakistan raised the sales tax on the sale of tractors from zero rating to 16 percent. This action put pressure on the tractor industry in the country, and the top line of BCL was severely impacting during the period. On, the other hand the country also faced sever energy crisis in FY11, that created major inter-operations during the production process thereby resulting higher fuel prices, along substantial maintenance downturn time.
The first two-quarters of FY12 were under the speculations that government would reduce the sales tax on tractors, which in turn resulted in the decline of sales of casting. The government changed its mind after witnessing a drastic drop in tractor sales and reduced the tax rate to five percent. Despite increase demand the company was not able to catch up and reported the net sale of 12,028 metric tons compare to 14,895 tons in previous year.
In the budget for FY13, the government once again raised the sales tax to 10 percent and in next budget of 2014, it brought the tax figure to once again 16 percent. After the increase in FY14, once again speculations started along with the absence of tractor related subsidy from provincial government during the year resulting in a drastic drop in sales of tractors, forcing the casting company to incur a loss of Rs 106 million in FY14. The tonnage sales during the two financial years under discussion were 11,724 metric tons and 7,342 metric tons.
As it always happens in Pakistan, the government once again realised that there is a declining trend in the tractor industry and resultantly the agricultural sector, it decided once again to reduce the GST from 16 percent to 10 percent in FY15 budget. At the same time, the government implemented policies to promote agriculture through loan schemes. Due to this announcement, the tractor sector made a good recovery and the demand of tractor casting improved as well. Under these favourable conditions, Bolan produced 11,368 metric tons of casting against 8,575 metric tons the previous year. The tonnage net sale was 10,966 metric tons compare to 7,347 metric tons last year.
Recent performance The performance of Bolan Castings Limited in FY16 is disappointing so far but so does the tractor industry. During the first quarter of FY16, the tractor industry saw a sharp decline in sales and government policies compelled the tractor industry to close their production temporarily. Total tractor sales stood at 6,745 units, down 28 percent in the first quarter of the fiscal year of 2015-16 from 9,363 units during the same period last year. However, things were not any better for the four months ended FY16, tractor unit sales again decline by 33 percent year-on-year, while production was 38 percent lower. The central issue for this decline was the tractor subsidy schemes which were announced by Sindh and Punjab during the provincial budget. However, this announcement never, materialised, and now they have been shelved by both provinces.
Under these conditions, the under par performance of Bolan was quite expected. During the first quarter of FY16, the top line of the Company was increased by three percent, but the bottom line was under pressure due to higher core cost. The recently announced half-yearly result of Bolan Castings Limited the sales have nose-dived by 40 percent in year-on-year analysis and this has put the BCL in the red zone.
Outlook: Going forward, it is evident that the health of Bolan is connected with the health of tractor industry. Millat tractors which are also the sister company of Bolan made an agreement with AGCO to export Massey Ferguson tractors through AGCO's distribution network. It will help the BCL to get back in the game, but the Casting Company should also focus on reducing its rising cost and expanding its export sales.
======================================================================
Bolan Castings Limited
======================================================================
FY10 FY11 FY12 FY13 FY14 FY15
======================================================================
Profitability
----------------------------------------------------------------------
Gross margin 14% 12% 11% 9% -2% 11%
Operating profit ratio 11% 9% 7% 5% 8% 7%
Net margin 5% 4% 3% 1% -9% 3%
Return on Assets 8% 8% 4% 2% -10% 4%
----------------------------------------------------------------------
EBITDA 12% 10% 9% 6% -5% 6%
----------------------------------------------------------------------
Liquidity
----------------------------------------------------------------------
Current ratio 1.57 1.84 1.62 1.46 1.35 1.38
Quick ratio 1.19 1.12 0.71 0.91 0.5 0.55
Activity & Investment
Asset turnover 2% 2% 63% 76% 93% 71%
Fixed asset turnover 6.84 7.8 7.17 7.95 5.73 9.07
EPS (Rs per share) 7.88 7.5 4.47 2.13 -9.2 4.09
======================================================================