Ghandhara Industries Limited – BR Research ReadingS


Ghandhara Industries Limited was established in Pakistan in 1963. The company is engaged in the assembly, progressive production and sales of Isuzu trucks, buses and pickups.

Shareholding Form

As of June 30, 2023, GHNI had a total of 42.609 million shares outstanding, held by 7,925 shareholders. While there are affiliated companies, undertakings and related parties with a 63.95 percent share in the company, local people have a 24.3 percent share. The remaining shares are held by other categories of shareholders.

Financial Performance (2019-23)

While GHNI’s top line recorded year-on-year growth only in 2021 and 2022, there was a decline in net sales in the remaining years. Profitability fell significantly in 2019, resulting in a net loss, followed by an even bigger decline in 2020. GHNI’s profitability rebounded in 2021 and 2022 before falling again in 2023. Its margins trended downward through 2020 and then rebounded in 2021. In 2022, GHNI’s margins fell again. While gross and operating profit margins increased slightly in 2023, net profit margins continued to decrease (see profitability ratios chart). Detailed performance review for the years in question is given below.

In 2019, GHNI’s revenue dropped 17 percent year-on-year. During the year, Pakistan’s truck and bus industry also experienced a sharp 33% year-on-year decline in sales volume, reaching 6,763 units in 2019. This was due to slow progress of CPEC, high international steel prices and weak Pak Rupee. and halting government spending in 2019. In line with the industry trend, GHNI also sold 3018 units of trucks and buses in 2019, down 25 percent from the previous year. However, on the positive side, the company diversified its portfolio and launched “D-MAX” pickup trucks in 2019. The company sold 391 pickup trucks in 2019. The sales cost of buses decreased by 10 percent annually in 2019. This resulted in a 49 percent drop in gross profit, with GP margin falling from 18.5 percent in 2018 to 11.5 percent in 2019. Distribution and administrative expenses also decreased by 8 percent. This was driven by lower sales commission and lower payroll expenses, respectively, in 2019. GHNI also reduced its workforce from 738 employees in 2018 to 611 employees in 2019 due to curtailed operations due to stagnant demand. . Operating profit decreased by 59 percent in 2019 compared to the previous year, and OP margin fell from 13 percent in 2018 to 6.4 percent in 2019. The cost of finance increased by 238 percent annually in 2019 due to the high discount rate and increased borrowings, especially to finance imported goods. As a result, net profit contracted by 96 per cent year-on-year in 2019, reaching Rs 59.95 million with earnings per share at Rs 1.41 compared to Rs 31.98 in 2018. NP margin also decreased significantly from 8.1 percent in 2018 to 0.4 percent. percent in 2019

The truck and bus sector, which was already grappling with lackluster demand due to sluggish economic activity, exorbitant prices of international raw materials, depreciation of Pak Rupee, high domestic inflation and high finance cost, was hit hard by COVID-19 in 2020. In 2020, the sales volume of the sector decreased by 46 percent compared to the previous year, reaching 3,647 units. GHNI sold 1,700 trucks and buses in 2020, a 44 percent decrease compared to the previous year. In comparison, the sales volume of newly launched pickup trucks increased by 68 percent year-on-year to 656 units. GHNI’s revenue fell 15 percent year-on-year in 2020; However, its cost could not fall by the same magnitude due to rising raw material costs and depreciation of Pak Rupee. As a result, gross profit fell by 57 percent year-on-year in 2020, with GP margin falling to 5.9 percent. Distribution expenses decreased by 8 percent annually in 2020 due to the lower sales commission incurred during the year. In contrast, administrative expenses increased 2 percent in 2020 due to increased payroll expenses as the number of employees increased to 621 in 2020. GHNI recorded an operating loss of Rs 41.49 million in 2020. Its financial performance worsened by 29 percent compared to the previous year. – Annual increase in financing costs due to the increased discount rate until March 2020 and the increase in borrowings taken during the year. This corresponded to a net loss of Rs 1282.88 million and a loss per share of Rs 30.11 in 2020.

The truck and bus industry developed in 2021 and recorded a 19 percent annual increase in sales volume, reaching 4,347 units. As the overall business environment started gaining momentum, thanks to the easing of the lockdown, strengthening of Pak Rupee and various economic stimulus packages launched by the government, customers regained their lost confidence and started investing in the automobile sector. During the year, GHNI sold 2020 trucks and buses, an increase of 19 percent year on year. In contrast, the sales volume of pickup trucks decreased by 52 percent annually to 316 units in 2021. This resulted in a 27 percent year-on-year increase in GHNI’s revenue in 2021. Cost of sales increased by 16 percent. percent on an annual basis in 2021 due to appreciation of Pak Rupee. As the local currency strengthened and prices were revised upwards, GHNI’s gross profit increased by 200 percent in 2021, while its GP margin increased to 13.8 percent. Distribution expense increased 15 percent in 2021, primarily due to higher salaries as well as a significant increase in late delivery fees. While the number of employees increased to 681 in 2021, administrative expenses also increased by 30 percent in 2021 due to high payroll expenses. High scrap sales, as well as profits from savings accounts and term deposits, drove other income to rise a whopping 244 percent in 2021. In 2021, profit-related provisions were largely offset by a 489 percent year-on-year increase in other expenses due to the high increase in the provision for doubtful debts, deposits and advances. GHNI managed to avoid operating losses in 2021 and strong operating profit of Rs 1204.28 million. The financing cost also eased in 2021, shrinking by 52 percent compared to the previous year due to the low discount rate. GHNI posted a net profit of Rs 604.21 million in 2021 with earnings per share of Rs 14.18 crore and NP margin of 4 per cent.

In 2022, GHNI’s revenue recorded a staggering 62 percent year-on-year increase. This was supported by both price revisions and increased volumes. During the year, the company sold 3016 trucks and buses, an increase of 49 percent compared to the previous year. Pickup truck sales also increased by 50 percent annually to 473 units in 2022. The overall sales volume of the truck and bus sector also recorded a 49 percent recovery on an annual basis. It amounted to 6,498 units in 2022. This was due to the upward trend prevailing in the local economy in the first three quarters of 2022. Due to the rapid depreciation of the Pak Rupee, the cost of sales increased by 65 percent in 2022 compared to the previous year. such as increases in commodity prices. Gross profit increased by 43 percent in 2022 compared to the previous year; however, the GP margin decreased to 12.2 percent. The company, whose number of employees decreased to 657 in 2022, managed to keep its administrative expenses at the same level as last year. In contrast, distribution expenses increased by 69 percent in 2022 compared to the previous year due to a large increase in sales commissions. Operating profit increased by 32 percent year-on-year in 2022, but OP margin decreased to 6.6 percent. Despite monetary tightening, GHNI managed to reduce its financing cost by 3 percent in 2022, thanks to the efficient use of borrowing resources. As a result, its net profit rose 21 percent year-on-year to Rs 728.50 million in 2022, with earnings per share of Rs 17.10. NP margin decreased to 3 percent in 2022.

The economic and political turmoil that started in the last quarter of 2022 became even worse in 2023. High inflation, depreciation of Pak Rupee, exorbitant commodity prices, import restrictions, increase in energy tariff and discount rate, besides the contraction, also negatively affected the operational performance of businesses. in consumers’ pockets. The truck and bus sector has also been negatively affected by the widespread slowdown in economic activity. General industry sales decreased by 41 percent in 2023 compared to the previous year, falling to 3,836 units. GHNI’s sales volume decreased by 47 percent annually to 1,600 trucks and buses in 2022, and by 59 percent annually to 194 pickup trucks. Gross profit fell 22 percent. However, on an annual basis in 2023, GHNI managed to increase its GP margin to 15.8 percent, putting the burden of the cost increase on its consumers. Distribution expense decreased 4 percent year over year due to lower payroll expenses. Administrative expenses increased 5 percent year-on-year in 2023 due to higher repairs and maintenance, utility charges, as well as travel and transportation fees. Operating profit fell 25 percent year-on-year in 2023, but controlling for operating expenses resulted in a better OP margin of 8.2 percent. The unprecedented level of discount rate has led to 70 percent higher financing costs in 2023. This has led to a 75 percent slimmer profitability in 2023. Net profit stood at Rs 179.42 million in 2023 with EPS of Rs 4.21 crore and NP margin of 1.2 per cent.

Latest Performance (1QFY24)

The truck and bus sector did not see any recovery in 1QFY24 due to widespread demand suppression and economic slowdown. According to data released by PAMA, overall sales of trucks and buses slowed by 45 percent year-on-year to 547 units in 1QFY24. In line with the industry trend, GHNI’s sales volume also shrank by 59 percent in the first quarter of 2020. This meant that GHNI was 40 per cent thinner in 1QFY24. Cost of sales fell 43 percent year-on-year in 1QFY24. Despite gross profit contracting by 16 percent year-on-year in 1Q24, the company managed to increase its GP margin from 12.7 percent in 1Q23 to 17.6 percent in 1Q24. Lower sales volume also led to a 17 per cent decline in distribution expenses in 1QFY24; but administrative expenses increased by 13 percent during this period, supposedly due to high inflation that increased labor costs as well as utility wages. Operating profit fell 14 percent year-on-year in 1QFY24, but operational profit margin improved from 7 percent in 1QFY23 to 10 percent in 1QFY24. GHNI reduced its financing cost by 22 percent in the first quarter of 2020, despite the high discount rate. This was done by reducing short-term borrowings in 1QFY24. Net profit fell 23 per cent year-on-year to Rs 61.60 million in 1QFY24 and earnings per share stood at Rs 1.45 crore compared to Rs 1.88 crore in 1QFY23. NP margin increased from 1.9 percent in 1Q23 to 2.4 percent in 1Q24.

Looking to the Future

With the easing of import restrictions and the recent strengthening of the Pak Rupee, the company may reduce its cost, but the loss of demand resulting from almost no government spending on development projects and the widespread slowdown in the economy may continue to take its toll. It hurt GHNI’s output.

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