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Review of tyre markets and General Tyre and rubber company of Pakistan

Researchers calculated that the worldwide tyre market reached worth 3 billion units during 2017, increasing at a CAGR of almost 4.5 percent during the last 7 years. Researchers also stated in a report that the worldwide automotive tyre market is predicted to boost significantly during 2018-23. They have also predicted that global tyre market will continue rising progressively right through 2018 as total annualized tyre sales volumes are anticipated to cross 3.6 billion units mark in 2018. No doubt, the growth of the market is attributed to rising automotive market and increasing need of high performance tyres. They also mentioned in a report that this market can be broken into two sectors – the OEM and the replacement market. The demand from the OEM tyre market is dependent upon the sales of new automobiles and is thus prone to a high degree of cyclicality.

Demand in the replacement tyre market depends upon the usage patterns and the replacement cycles of existing tyres. The replacement tyre market is comparatively less cyclical and shows a higher margin business. Region-wise, China presently shows the world’s biggest market for tyres. Presently, Chinese O2O (Online to Offline) model, practiced in tyre industry, can organize backward and forward supply linkages in Pakistan.

Despite of all above, in Pakistan General Tyre and Rubber Company of Pakistan Limited (GTR) is a renowned name in the tyre industry and is one of the prominent players in the automobile parts sector. Historically, General Tyre was organized by General Tire International Corporation (GTIC) of USA, with a total capacity of only 120,000 tyres per annum. GTIC sold 90 percent of their shares to the present owners M/s Bibojee Services Ltd in 1977 and retained 10 percent of the ownership. In 1985, the Company completed a major expansion, which took the capacity to 600,000 tyres yearly.

Continental AG, Germany’s number one tyre manufacturer purchased GTIC during 1987 and thus became 10 percent owners in GTR. The company’s officials urged that the capacity of the Company stands at 2.5 million tyres about meeting one third of the country’s demand. General is producing tyre sizes and patterns that cover almost 85 percent of the sizes in demand in Pakistan. GTR is presently the first and largest automotive tyre manufacturer in Pakistan producing tyres for cars, light commercial vehicles, trucks/buses, tractors, CNG Rickshaw. While motorcycle tyre plant has been added with the capacity of one million tyres per annum.

Furthermore, the financial experts of the company calculated in the financial report of June 30, 2018, that the production and sales for the period under review, in term of kilos, raised by 18 percent when compared with the corresponding period of last year. The net sales in value raised by 22 percent from Rs. 9.65 billion to Rs. 11.79 billion.

 

During the year, the uplift of tyres by Original Equipment Manufacturers (OEMs) explained growth of 13 percent from previous year. With the commissioning of the new mixing plant together with other ancillary machinery, the Company registered substantial growth of 31 percent in replacement market (RM) as against to the corresponding period previous year. The gross profit for the year was recorded Rs. 2.09 billion against Rs. 2.06 billion previous year. The financial experts of the company also calculated that despite good sales performance, the gross profit has raised by 1 percent over the previous year because of rise in prices of certain raw materials, significant devaluation of Pak Rupee, additional depreciation and stiff competition.

General Tyre has raised prices of tyres to partially offset increased costs which were necessary because of rising cost. The management of the company is facing competition from the undocumented sector, which is not paying its due share of duties and taxes. This restricts the company’s ability to completely recover raw material and other inflationary cost increases. Because of boost in economic activity of Pakistan on account of CPEC (China-Pakistan Economic Corridor) and installation of new vehicle manufacturing plants, the management predicts that demand of tyres will more rise. With the commissioning of the new mixing plant together with other ancillary machinery, GTR is better placed to cater OEMs and RM’s extra demands.

However, level playing field should be given to the documented sector, who is not only paying their due share of taxes and duties but also offering employment and contributing towards the economic growth of Pakistan. It is also recorded in the financial statement of the company that the company is in expansion phase resulting in additional deprecation, financial cost and other overheads of expansion. However, this was required to meet the future demand.

As a result of the factors discussed above, the profit after tax (PAT) for the year ended June 30, 2018 is Rs. 716 million as against to Rs. 881 million of last year. Furthermore, for the year ending June-17, Bibojee Ltd. held 27.79 percent of the shares in General Tyres while Pak Kuwait Investment Company held 30 percent of the shares in the company. The General Tyre has a technical service agreement with Continental Global Netherlands AG, a top tyre manufacturer in Germany for modernization, training of human resource and quality supply of products to end-users.

The company presently renewed the technology partnership and renewed the royalty and technical services agreement for seven more years starting Jan-18. Seeing growing demand, the management (PSX: GYTR) also proclaimed that its plans to acquire 50 acres of land for manufacturing and 20 acres for warehousing at Port Qasim at a cost Rs 1.26 billion. This will raise production by 25 percent, and the company intends to double its production capacity under its long-term plans.

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