Tuesday, March 03, 2009
By Saad Hasan
KARACHI: The thread-to-car conglomerate Dewan Group seems to be in dire financial straits as five of its companies on Monday posted losses for six months to December 2008.
Falling demand for the group’s premium products like cars and cement amid dismal economic situation of last year have battered its overall profitability and future outlook, analysts said. “Dewan has taken a lot of loans from banks. It is highly-leveraged and balance-sheet is very weak,” said Khurram Shahzad, analyst at Invest Cap Securities. “Payment ability of the group has reduced substantially over past few years.”
Dewan Faooque Motors, manufacturer and distributor of Hyundai and KIA in Pakistan, announced a staggering loss of Rs707 million for the first half of fiscal year that ends in June 2009, indicating the severe hit automotive industry has taken.
This loss, which is substantially high from Rs74m the company incurred in same period of previous year, is 97 percent of the net sales. Net sales plunged steeply to Rs727m from previous year’s Rs2.6 billion, in what is realization of fears of top industry executives that sales will slide along with economic and political turmoil.
Even now when Pakistan’s macro economic indicators have started to improve on back of falling commodity prices in international markets and IMF-monitored government move to cutback expenditures, analysts say the crisis is far from over.
“Rollback of car-financing schemes by banks following rise in interest rate have definitely discouraged demand,” Shahzad said. “However, car prices fuelled by rupee depreciation have gone up substantially and trend would have to reverse for demand to pick up.”
With inter-bank lending rate dropping to a little over 12 percent on Monday, he said, there are indications of a possible cut in central bank’s discount rate of 15pc. “But demand will depend on stability in exchange rate and inflation.”
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