DEWAN FAROOQ MOTORS LIMITED
Manager Research, PAGE
Dec 31, 2007 - Jan 06, 2008
Dewan Mushtaq Group diversified its business activities by entering into the automobile industry in 1998. The Dewan Farooque Motors Limited signed Technical License Agreements with Hyundai Motor Company and Kia Motors Corporation in December 1998, as the manufacturer and distributor of Hyundai and Kia vehicles in Pakistan. Dewan Farooque Motors Limited acquired franchises of Hyundai Motor Company and Kia Motors Corporation to bring in Korean technology to the country. The plant of Dewan Farooque Motors located at Sujawal, around 145 km from Karachi in southern Pakistan, and Head Office of Dewan Motors located in Karachi.
Dewan Mushtaq Group is one of the most prominent and reputed industrial groups in Pakistan. Dewan enjoys the absolute confidence of the general public, local and foreign capital markets, financial institutions and the Government. The history of Dewan Mushtaq Group goes way back to the year 1916 to the State of Patiyala in the Punjab Province of India when a small cottage industry was set up by Dewan Mohammad and his son Dewan Mushtaq Ahmed to manufacture garments. During 1918, another establishment was started in Karachi to import clothing and other multifarious commodities which were then sold all over India. In 1947, the Dewan family migrated to Pakistan. They settled in Karachi, formed Dewan Mushtaq Sons, and started trading in commodities like tea, sugar, second-hand clothing, garments and fabrics. Due to hard work and honest dealings of the family, the business rose to new heights and by late fifties, the turnover of the firm was as significant as Rs60mn per annum. Dewan Mushtaq Group has an annual turnover exceeding Rs30bn. The main fields of business include textiles, sugar, polyester and acrylic staple fiber, assembly-cum-progressive manufacture of automobiles and equity participation in a private bank. Other allied businesses include a polypropylene sacks making and particle board manufacturing plants as downstream industries of sugar industry and automotive parts manufacturing as backward integration of its automobile industry.
Dewan Farooque Motors Limited has one of the most advanced automobile assembly plants of South Asia. Located at Dewan City, Sujawal, Thatta, with a total project cost of Rs1.8bn, the plant is built on an area of 42,000 square meters. Selection of the site reflects the commitment of Dewan Group towards building of a prosperous Pakistan and its contribution to national wealth. The project has provided direct employment to over 700 personnel. The plant is the first automobile manufacturing unit in Pakistan to be independently invested by 100% Pakistani investors. The annual capacity of the plant is 10,000 units on a single shift basis. The groundbreaking ceremony for the plant was held in June 1999, and the first Kia Classic rolled-out in a record time of six months. Today the modern state-of-the-art plant is rolling-out cars every day. This is the first and only automobile assembly plant in Pakistan with state of art robotic equipment.
The company has technical collaboration and license agreements with the following Korean companies:
* Hyundai Motor Company - December 25th 1998
* Kia Motors Corporation - July 27th 1999
The company assembles three kinds of vehicles which include: Passenger Cars, Recreational Vehicles and Commercial Vehicles. In passenger cars segment it has brands like Santro, Sonata and Hyundai Coupe. In the recreational segment it has Terracan while in the commercial segment it has Hyundai Shehzore.
Financial performance of the company during the first quarter of current fiscal year remained quite bleak as the company reported a loss. Sales revenue earned by the company rose during the quarter by 4% while cost on the other hand declined by 5% which reduced the gross profit by 2% whereas gross margins by 700 basis points. Distribution expense during the quarter went up by 10% which hindered the operating profitability growth. Profit before tax reduced by 86% during the year because of 3% increase in financial charges to humungous Rs.91mn. The company paid significant amount in terms of taxation which increased by 68% and on the whole reduced the profitability of the company by 150% to Rs.4.6mn (EPS: Rs-0.06) as against Rs.9.2m (EPS: Rs0.12) in the same period last year. Net margins of the company reduced from 0.6% in the 1Q/FY07 to -0.3% in the 1Q/FY08.
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Government in the budget on persistent request of the auto industry made some amendments in the policy relating to import of used cars, by placing restriction on import of used vehicles that are more than three years old. The positive impact of that is yet to come as there are quite a lot vehicles present in the market which were imported earlier. Nevertheless management of the company is keenly focused towards improvement in the sales volume and cost control.