OFFER FOR PUBLIC SUBSCRIPTION BY DEWAN FAROOQUE MOTORS
By SHABBIR H. KAZMI
Jun 05 - Jun 11, 2000
Offer for public subscription by Dewan Farooque Motors
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.
Name of Institution No. of shares Saudi Pak Industrial & Agricultural Investment Co. (Pvt.) Ltd. 2,500,000 Jahangir Siddiqui & Company Ltd. 2,000,000 Pak Kuwait Investment Company (Pvt) Ltd. 1,750,000 Aqeel Karim Dhedhi Securities (Pvt.) Ltd. 1,500,000 Al Meezan Investment Bank Ltd. 1,500,000 Arif Habib Securities Ltd. 1,500,000 Crescent Investment Bank Ltd. 1,500,000 Javed Omar Vohra & Co. Ltd. 1,500,000 Khadim Ali Shah Bukhari & Company Ltd. 1,500,000 Pakistan Industrial Credit & Investment Corporation Ltd. 1,000,000 Dawood Leasing Company Ltd. 1,000,000 Guardian Leasing Modaraba 250,000 Al Meezan Mutual Fund Ltd. 500,000 Pakistan Emerging Ventures Ltd. 500,000 Total 18,500,000