A leading automotive parts manufacturer, Agriauto Industries Limited (PSX: AGIL) was incorporated in 1981 and supplies components for automotive vehicles, motorcycles and agricultural tractors to both the original equipment manufacturers (OEM) and the replacement market. The company manufacturers shock absorbers and struts, motorcycle shock absorber and parts, sheet metal press parts, tractor parts such as steering boxes which are produced on automatic CNC machines, and other parts such as window regulators and door hinges. Agriauto client list includes Indus Motors Company, Pak Suzuki Company, Hino Pak Motors, Millat Tractors, Dewan Farooq Motors Limited, Dawood Yamaha, Atlas Honda Limited and Sohrab Motorcycle.
As part of the House of Habib Group, Agriautos is associated to several prominent businesses in Pakistan including automaker Indus Motors, Thal Limited, Shabbir Tiles and Ceramics, Habib Insurance Company and Habib Metropolitan Bank. Agriautos established a wholly owned subsidiary called Agriauto Stamping Company (Private) Limited in 2012 to handle stamping of sheet metal parts, sub-assembly operations, checking fixtures and jigs manufacturing primarily for the automotive sector. The subsidiary commenced production in 2014 and has been operating at full capacity.
Based on its shareholding pattern for June 2018, nearly 43 percent of the company's shares are held by Robert Finance Corporation while 7 percent voting rights of the company are held by its associate Thal limited. About 33 percent of the shares are held by private individuals.
Financial and operational performance The performance of any auto parts manufacturers and vendors strongly depend on the performance of the automotive industry and consumers' appetite for cars. These manufacturers provide specialized parts to OEMs as well as to the replacement market for existing cars and as part of after-sales services. The company has witnessed promising growth since FY15 on the back of growing automotive volumes in most segments (if not all) as well as a growing demand for replacement parts.
Tractor, cars and motorcycles provide the most business to Agriautos but while cars and motorcycles have continued to grow in terms of market size, tractor sales have fluctuated over the years closely following the changing government policy on tractors. The company's venture into manufacturing new products has helped it shore revenues. During FY17, the company started manufacturing fuel tanks for cars and motorcycles. Meanwhile, power window regulators and the catalytic converter projects were initiated during FY16 and starting selling from July 2017. The CAGR growth for revenues has been 5.6 percent between FY15 and FY18, but this translated to a one percent growth in the after tax profits primarily due to higher costs of production and other expenses.
Margins have reduced. The company imports commodity and other inputs and its margins are sensitive global prices as well as currency pressures. When costs go up, margins suffer. This has been the case for automotive and automotive parts manufacturers alike as they are dependent on imported content. These costs could be brought down if volumes grew substantially though there are other ways to mitigate the exchange risk.
In the past the import duty structure has also hurt auto parts makers, particularly the additional regulatory duties on inputs such as steel which, according to the auto parts industry, has affected their margins considerably as their inputs became more expensive.
Outlook Though both the tractor and motorcycle segments have witnessed a decline in volumes-tractors more than motorcycles-in 9MFY19, Agriautos has still witnessed a growth in revenues of 19 percent. Both automakers and auto parts makers have raised prices considerably to offset some of the impact of rising costs. The rupee devaluation has wrecked havoc on those dependent on imported goods, which resultantly has translated into higher prices. However, not enough to keep margins intact at 20 percent last year. In fact, margins fell to 16 percent in the nine-month period, primarily since all the cost pressures could not be passed onto the end consumer, and demand has remained subdued in most segments aside from cars. No doubt, passenger car volumes have persevered as every other segment headed south.
On the upside, Agriautos will have a large offering of new players to supply to, but on the other hand, economic austerity, falling disposable incomes, and the now receding volumes in passenger cars is not conducive for business growth. And the demand that will still come will be at a higher cost due to cost-push inflation. Margins will fall further down. The company has kept a good control over its indirect expenditure that has slightly come down from 6.5 percent to 5.8 percent as a share of revenues which may have cushioned the blow to profits, though not by a large margin. The company must hunker down and wait for the storm to pass.
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Pattern of Shareholding (as on June 2018)
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Categories of Shareholders Share
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Directors and their spouse(s) and minor children 0.08%
Joint Stock Companies 4.69%
Public Sector Companies 0.43%
Foreign Investors 42.52%
Robert Finance Corporation, AG 42.52%
Associated Companies, and related parties 7.35%
Thal Limited 7.35%
Banks, development finance institutions, 3.060%
insurance, non-banking finance companies etc.
Mutual Funds 7.98%
Individuals 32.79%
Co-operative societies 0.01%
Charitable 0.12%
Others 0.98%
Total 100%
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Source: Company accounts
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Agri Autos: Nine Months Standalone Financials
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Mn Rs 9MFY19 9MFY18 YoY
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Sales 5,413 4,540 19%
Cost of Sales 4,554 3,652 25%
Gross Profit 859 888 -3%
Administrative 166 156 6%
Distribution 96 85 13%
Other operating expenses 50 54 -8%
Finance cost 0.22 0.22 0%
Other income 26 39 -34%
Profit before tax 572 631 -9%
Taxation 182 189 -4%
Net profit for the period 390 442 -12%
Earnings per share (Rs) 13.54 15.35 -12%
GP margin 16% 20% -19%
NP margin 7% 10% -26%
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