GENERAL TYRE AND RUBBER COMPANY PAKISTAN LTD.
S.KAMAL HAYDER KAZMI,
Research Analyst, PAGE
Sep 14 - 20, 2009
General Tyre & Rubber Company Pakistan is a tyre manufacturing company based in Pakistan. The main business of the company is manufacturing and sale of tyres for passenger cars, light trucks, and vans, trucks and buses. The company supplies tyres to original equipment manufacturers (OEM) and to replacement markets.
The company is manufacturing under the brand name of General Tyre, which is a global brand produced in five continents. Continental, AG Germany, a German tyre manufacturer, provides the company with its technology.
The companyís plant and the offices, spread over an area of 25 acres, are located in the suburb of Karachi. The companyís shares are quoted on the Karachi and Lahore stock exchanges.
FINANCIAL OVERVIEW (Rs 000)
INDICATORS FY09 FY08 % CHANGE Net Sales 5,349,480 4,614,728 15.92 Cost of Sales 4,747,525 4,104,409 15.67 Gross Profit 601,955 510,319 18.00 Admin Expense 79,928 73,925 8.12 Profit Before Tax (142,270) 7,340 - Profit After Tax (109,824) (16,505) - Earning Per Share (Rs) (1.84) (0.28) - Current Assets 2,062,500 2,290,398 (9.95) Current Liabilities 25,377,191 2,249,552 5.67 Source: General Tyre & Rubber
The financial overview shows the companyís key performance structure and the business performance. The company recorded sales of 1,341,609 tyres as compared to 1,627,531 of last year. The main reason for the shortfall was reduced sales to OEMs by 35% due to much lower demand for Cars/Light Commercial Vehicles. However, there was an encouraging growth of 22% in Replacement Market (RM) segment.
In value terms, the net sales showed a growth of 16%. The international price of crude oil peaked in July 2008 and remained high in the first half of the companyís financial year, which kept the cost of raw materials high for the first nine months of the year. The depreciation of Pak Rupee also affected negatively on the profitability of the company. The irony was that in spite of increase of cost and expenses, the company could not obtain timely price increases from its OEM customers since OEMs were also undergoing a similar situation and hence reluctant to accept any price increases.
The result was a Pre-Tax Loss of Rs. 142 million for the year compared to the Pre-Tax Profit of Rs.7 million in the previous year.
However, the most encouraging thing is that the company reduced the Pre-Tax Loss of Rs. 263 million from the first nine months of the year to a Pre-Tax Loss of Rs. 142 million due to better performance and profitability in the last quarter of the year, which is very reassuring for the financial year 2009/10.
Government has included tyres in the Tariff Based System (TBS), which was the industryís long awaited demand. However, the local tyre industry allegedly continues to face competition from smuggled tyres and under invoicing by importers. The fraud also goes on the import of used tyres (a banned item) under the garb of scrap rubber. Used tyres, which are discarded in the advanced countries to limit pollution, are picked up by garbage collectors from whom Pakistani importers import them as rubber scrap.
However, these tyres on salvage are resold in Pakistan.
Since they are not manufactured here and imported as scrap rubber, they effectively become smuggled tyres with the added advantage that they inflate the demand figure provided to the government. That this trick has worked for years is proved by the low import duty on truck tyres although it is estimated that a little less than half of Pakistanís annual truck tyre consumption is met by tyres smuggled via Afghanistan. This is not only hurting the industrial sectors of the country but is also robbing the exchequers of billions of rupees and needs rationalization by the government.
MARKETING & SALES
As the company caters to 98% of OEM market, its sales to this segment of the market depend on the number of vehicles produced by the OEMs and there is not much the company can do to control sales. However, there is ample room for growth in the RM (replacement market) segment as the company has a small share of this segment. General Tyre Company has done well in this area and has been able to penetrate and recapture its share in the RM segment in a planned manner. The company showed a growth of 22% in this segment.
Tyre importers show exaggerated demand by using inflated tyre estimates. The losers in this entire circuit of illegalities are the government and the local tyre manufacturing industry.
The company produced 1,329,839 tyres during the year compared to 1,601,044 tyres last year due to lower sales. However, the equipments acquired and installed in the current year under the BMR programme will be able to produce higher number and better quality of tyres to satisfy future needs of sales.