DEWAN FAROOQUE MOTORS LTD

S.KAMAL HAYDER KAZMI,
Research Analyst
, PAGE
Oct 20 - 26, 2008

Dewan Farooque Motors Limited (DFML) is principally engaged in the assembly, progressive manufacturing and sales of Hyundai Motor Company and KIA Motors Corporation vehicles in Pakistan. DFML has entered into separate technical license/collaboration agreements with Hyundai Motor Company, Korea and KIA Motors Corporation, Korea. DFML has one of the most advanced automobile assembly plants of South Asia Located at Dewan City, Sujawal, Thatta, with a total project cost of Rs. 1.8 billion, the plant is built on an area of 42,000 square meters. 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. It is the first and only automobile assembly plant in Pakistan with state of art robotic equipment. However, today the automobile industry in Pakistan faces huge crisis and that's why PACRA has withdrawn the entity ratings (Long-term A, Short-term A2) of DFML in May this year. The company is listed in the Karachi Stock Exchange, Lahore Stock Exchange and Islamabad Stock Exchange.

FINANCIAL POSITION OF DFML

INDICATORS

31-MAR-08 Rs (000)

31-MAR-07 Rs (000)

Net Sales

1,106,579

1,822,332

Cost of Sales

1,026,723

1,610,056

Gross Profit

79,856

212,276

Source:DFML

The Financial Highlights of the Dewan Farooque Motors examines the key business structure, operations and Net sales. From Mar FY07 to FY08 the net sales was decreased by 40 percent and cost of sales declined by 36% during one year. The company's Gross profit was decreased by 62.4 percent over one year. The profit for the period was Rs 4.09 mn during 31 March 2007. However, the company suffered from a heavy loss of Rs 6.7 mn during 31 March 2008.

INDICATORS

GROWTH IN MAR-08

GROWTH IN MAR-07

Current Ratio

0.97

1.03

Quick Test

0.64

0.67

Fixed Assets Turnover

0.48

0.76

Total Assets Turnover

0.18

0.26

Return on Assets

(1.11%)

0.05%

Return on Equity

(4.46%)

0.24%

Source:DFML

The Current Ratio of the Company was recorded 0.97 in FY08 and 1.03 during FY07, which shows declining performance of the company. The Quick acid was recoded 0.64 in 31 March 2008 and 0.67 same period last year. The Fixed assets turnover 0.48 and Total assets turnover 0.18 were recorded in 2008 which is less than previous year. The company showed a loss in Return on assets (ROA) by 1.11 percent & Return on Equity (ROE) 4.46 percent during 2008. The hike in steel prices and devaluation of pak rupee against USD has posed another challenge for DFML and needs to cope up with the depressed demand situation. The company should strive hard in order to sustain under the difficult condition and should make best efforts in order to imporve volumes with effective sales promotion.

DEWAN FAROOQUE MOTORS LTD

CATEGORY

PRICE

Santro Prime

Rs. 614,000

Santro Club

Rs. 634,000

Shehzore Pickup H-100

Rs. 649,000

Santro Prime GV

Rs. 654,000

Shehzore Pickup H-100 (Deckles)

Rs. 669,000

Santro Club-GV CNG

Rs. 674,000

Santro "EXEC"

Rs. 704,000

Santro EXEC GV CNG

Rs. 754,000

Sonata (M/T) 2.4L DOHC

Rs. 1,799,000

Sonata (A/T) 2.4L DOHC

Rs. 1,899,000

Coupe (M/T) 2.0L DOHC

Rs. 2,399,000

Coupe (A/T) 2.0L DOHC

Rs. 2,499,000

Terracan (M/T) 2.9L CRDI

Rs. 3,149,000

Terracan (A/T) 2.9L CRDI

Rs. 3,349,000

PICANTO EX M/T (1.1L)

Rs. 759,000

PICANTO EX A/T (1.1L)

Rs. 839,000

RIO EX M/T (1.4L)

Rs. 999,000

SPORTAGE LX M/T (2.0L 4x4)

Rs. 2,249,000

SPORTAGE LX A/T (2.0L 4x4)

Rs. 2,399,000

SPORTAGE EX A/T (2.0L 4x4)

Rs. 2,649,000

Source: PakWheel

THE INDUSTRY

The Automobile industry is going through a phase of consolidation. Car sales after having phenomenal growth during 2002-07, fell by 8.95% to 164, 650 units in 2007-08 against 180,834 units recorded in 2006-07. Sales of Bus & Trucks and LCVs increased 2.28% to 29,307 units against 28,651 units in the same period last year. Tractors sales was 1.16% lower, with 53,203 tractors sold in the reporting periods against 54,052 tractors in the year 2006-07. The Auto sector in general witnessed a slow down as car financing became expensive with the increase in interest rate and further, banks have become more strict in their auto finance facilities due to loan default. Auto assemblers also increased price of cars against rising input cost, imposition of with holding tax (WHT), federal excise duty and increase in Sales Tax.

CONCLUSION

Dewan Farooque Motors during this year has shown massive decline in sales due to which it has lost its profitability. The main factors are the ever rising increase in rate of materials, utilities and interest, devaluation of rupee, domestic inflation and other factors affecting the country. The overall Automobile Industry in general and the vending industry in particular are facing various challenges too. The declining trend of car sales would likely to continue also in the current fiscal year due to the reasons above described affecting the demand of parts supplied to them by vending industry. With all these current scenarios we cannot expect DFML to perform to its potential in the near future.