Offer for public subscription by Dewan
Taking the advantage of renewed interest in the capital markets, Dewan
Farooque Motors Limited (DFML) announced its plans for listing at Karachi Stock Exchange
(KSE). It offered 18.5 million shares, having a face value of Rs 10 per share, to general
public. The public offer was fully underwritten. DFML is the second company which has made
public offer in the current year. Earlier WorldCall, a payphone company, had offered its
shares to the general public.
It is heartening to note that listing of new companies has commenced
after a long time. The change in investors' sentiments is a positive step towards the
development of the capital markets. New issues can provide more depth to equities market
in the country. This may allow the GoP as well as the investors to gauge the appetite of
the capital markets. This was necessary as the GoP plans to follow privatization of state
owned listed companies through bourses to broad base the shareholding in the country, with
little tradition of share ownership by individual investors.
DFML has already started progressive manufacturing and marketing of two
leading brands of Korean origin, Kia and Hyundai. In the small cars category, the Company
will face competition with two Japanese brands Suzuki and Daihatsu. As the local
auto industry passes through its development stages, the market will force the each player
to create its own niche segment for its various models. DFML is expected to focus the
strategy to consolidate its position in the smaller car segment where Suzuki has been
enjoying monopoly for nearly two decades. The success will largely depend on market
penetration and operational efficiency.
Some analysts have expressed concerns about the earnings volatility
because the Company has entered into a fiercely competitive and price conscious segment of
the car market. However, one must also keep the current market scenario in mind where the
need for more small car manufacturers has been felt for a long time. According to some
sector experts as such domestic pricing has improved meaningfully since the beginning of
this year mainly due to DFML's entrance into a monopolized segment of the market.
Previously the price hikes were continuously taking place in a more muted way. Whenever
companies launched new models any increase in price was attributed to new options such as
grill change and small frills apart from the exchange rate.
Analysts expect a substantial increase in the earning of DFML with its
complete range and Kia's new midsize-car, Shuma, that is to be positioned around Suzuki's
Baleno and other Japanese brands in the same category. At the same time, the aggressive
promotion, currently being followed by DFML, may not by there after the launch of new
Santro model as the Company will be spending more on other models. Introduction of new
models is expected to have a positive impact on the earnings of the Company in the years
to come. Although, small car segment is not the main focus of the company, sector experts
anticipate new models will add more to the sales volume and ensure greater penetration in
the market so far dominated by the assemblers of Japanese brands.
The first problem DFML addressed was its advertising and promotion
strategy. Previously, the local market viewed Korean products apprehensively. However with
certain promotional campaigns with Shell and Citibank, the company has been able to lessen
this impediment to future profitability considerably.
The customers can also refer to the performance of Korean auto products
in other foreign markets. The small-car market in the US is becoming a niche market for
Korean automakers. Korean manufacturers collectively take up a 15 per cent market share of
the small-car segment in April year-to-date, which is a dramatic improvement from about 9
per cent in full year 1999.
There has been another form of earnings improvement possibility
the introduction of car financing schemes. There has been a noticeable improvement in the
terms of interest-based installment sales since the arrival of the new entrants into the
market. This can have a positive impact on the profitability of the automakers. So far the
largest group has been the employees of corporate sector but once companies start
approaching the general public the experience could be contrary. Many analysts say this is
a rather risky business when one looks at the habits of people having keen interest in
entering into hire-purchase agreements. Some other but indirect factors expected to have a
positive impact on the sales of small car producers are: increase in the prices of two
wheelers, POL prices and miserable condition of public transport in the country.
||No. of shares
|Saudi Pak Industrial & Agricultural
Investment Co. (Pvt.) Ltd.
& Company Ltd.
Investment Company (Pvt) Ltd.
|Aqeel Karim Dhedhi
Securities (Pvt.) Ltd.
Investment Bank Ltd.
|Crescent Investment Bank Ltd.
|Javed Omar Vohra
& Co. Ltd.
|Khadim Ali Shah
Bukhari & Company Ltd.
|Pakistan Industrial Credit &
Investment Corporation Ltd.
|Al Meezan Mutual
|Pakistan Emerging Ventures Ltd.