Tractors: AL-GHAZI TRACTORS LIMITED - Analysis of Financial Statements December 2004 to March 2007
SCANNER
OVERVIEW (August 28 2007): Al-Ghazi Tractors Limited was incorporated in 1983, as a culmination of the then government's desire to bring in the private sector to join hands with the public sector - as a public-private enterprise - under a seven-year management contract to the private shareholders.
At the end of seven years, the government took over the management control of AGTL in 1990. In 1991 the project was offered for privatization, and acquired by Al-Futtaim Group of Dubai. Al-Futtaim Industries Co LLC held 50.02% shares of the company and 43.17% shares held by CNH Global NV, with whom Al-Ghazi Tractors Limited has signed an Industrial Collaboration Agreement for manufacture of New Holland brand tractors. The agreement is valid till April 2016.
==========================================================
Highlights - AGTL PKR (Rs) m
==========================================================
Year end: Dec HY'07 HY'06 Chg. (Rs) Chg. (%)
==========================================================
Net Sales 4,688 4,358 330 7.6
Gross profit 861 783 77 9.9
EBIT 782 710 73 10.2
Other income 294 278 16 5.9
PBT 1,000 917 84 9.1
PAT 673 594 78 13.2
EPS (Rs) 15.67 13.84 1.83 13.2
Gross margin 18.4% 18.0%
EBIT margin 16.7% 16.3%
Net profit margin 14.4% 13.6%
==========================================================
Source: fnetrade.com
With Corporate Head Office in Karachi, its plant is located in Dera Ghazi Khan. Built to specifications and standards of Fiat/New Holland - the world's No 1 tractor manufacturer - the plant is a hallmark of engineering dynamics. With the expansions carried out in 2005, the plant is now capable of producing 30,000 plus tractors per year in a single shift, the most enduring competitive edge being the quality of our tractors, which are robust and sturdy and carry a local content as high as 83%.
Al-Ghazi Tractors Limited (AGTL) is engaged in the manufacture and sale of agricultural tractors, implements and spare parts in Pakistan. It manufactures tractors of various models including 480-S (55 horsepower), Ghazi (65 horsepower), 640 (75 horsepower), and 640 Special (85 horsepower). Al-Ghazi Tractors Limited, is a subsidiary of Al-Futtaim Industries Company LLC. The company has completed its capacity expansion in FY06 as a result enhancing the capacity by 100%. Now, with an annual assembling capacity of 30000 units and capacity utilization of more than 100%, the company is the country's largest tractor manufacturer.
Recent Results:
The company has declared Rs 673m PAT (EPS: Rs 15.67) in HY07 as compared to Rs 594m (EPS: Rs 13.84) in HY06, depicting a growth of 13.2% due to higher sales volume. The company has also announced an interim cash dividend of Rs 5.0 per share for HY07 (Rs 5.0 per share in HY06). The sales volume increased 6.1% to 13,510 units in HY07 as against 12733 units in the same period last year. The plant achieved 90.9% capacity utilization by producing 13,641 tractors in the said period as compared to 12,629 produced last year.
Robust demand for tractors due to better performance of the economy, better crop yield and overall improvement in the buying power are main reasons which improved the liquidity position of the company with high cash balance, advances and inventory level. Therefore, the current ratio is improving rapidly. With a current ratio hovering around 2, AGTL fares reasonably better than its competitors.
Tractor orders from ZTBL are declining whereas cash advances from customers are increasing. As a result the credit disbursement by the banks for agriculture has decreased by more than 50%, eroding a major part of tractor business from the company.
The fixed selling price since 1998 is hurting the revenue of the company on account of high cost of manufacturing as indicated by irregular profit margin ratios of the company. High sales volume was the main factor, along with the efficiency on part of AGTL towards cost reduction that bolstered the profitability. However, the recent decision by the government to deregulate the prices will prove to be beneficial for the company, as it will be able to pass the increased costs to the customers.
With one of the highest deletion levels in the industry (83%), exchange rate risk is the least for the company. Fluctuations in international steel prices continue to affect the net profit of the company. ROE is declining on account of high revenue reserves. Lately, it has been marginally lower than the industry average otherwise it performed well in the preceding years. ROA, on the other hand continue to bolster, thanks to high volumes of sales.
Asset management ability of the company is far better than that of the industry. This can be attributed to speedy delivery, better management and control over the business processes. As evident from the operating cycle, the company is proficient in terms of converting its inventory into cash.
Moreover, TATO and sales/equity has posted a declining trend mainly due to new plant and equipment and high revenue reserves respectively. The company can perform well in its asset utilization with better capacity utilization and further extensions.
Surprisingly, the company does not have any long-term loans, as such its long-term debt-to-equity ratio is negligible. All expansions are either supported by short-term loans or equity thus keeping the debt ratios near to the ground. Consequently, finance expense for AGTL is on a lower side thus poses meager threat in the wake of increase in KIBOR. Interest-paying capacity of the company (TIE Ratio) is fairly high.
Rising cost of material and high steel and gas prices have affected the marketability of the company. DPS is also decreasing. In general, the market value ratios did not perform well when compared to the industry averages.
The BV and P/E are however increasing signifying investors' confidence in AGTL.
FUTURE OUTLOOK:
Overall, the company has performed well for the last 3-4 years and has been able to capture a significant market share of around 53%. Recently two new models of tractors were launched signifying continuous growth and expansion on part of the company. The disbursement of loans has reduced significantly in the agro sector by the ZTBL, thus leading to lower bookings in the year FY07. This situation is highly distressing keeping in view the capacity expansion endeavors of the industry. AGTL has doubled its capacity and picking up of demand is imperative for better ratios and profitability figures.
The recent decision in the Budget 2007-08 to de-regulate the prices is likely to bode well for the company. 1% Special Excise Duty has also been charged on the tractors, however with the de-regulation of the prices, this increase shall be passed on the customers and will not affect the company.
Although the import of tractors is allowed duty-free, and the Tariff Based System affects the cost of the company, the de-regulation of prices negates the impact of all the decisions taken earlier that impacted the industry adversely.
=================================================================
AL-GHAZI TRACTORS LIMITED-KEY FINANCIAL DATA
=================================================================
Income Statement (Rs'000) FY'04 FY'05 FY'06 Mar'07
Total Revenue 6735195 9022515 7739322 2206824
Cost of Goods Sold 5136710 7387468 6136774 1795774
General & Administrative Expense 53328 65152 61403 18594
Selling and Distribution Expense 68427 80043 79744 22010
Operating Profit (EBIT) 1490434 1912941 1643073 482691
Financial Charges 6245 2761 7517 1764
Net Income Before Taxes 1484189 1910180 1635556 480927
Net Income After Taxes 1545098 4155274 3698853 3910241
Balance Sheet (Rs'000) FY'04 FY'05 FY'06 Mar'07
Stores & Spares 8,847 15,316 8,118 7,828
Stock in Trade 647,986 740,140 731,002 802,198
Cash & Bank Balances 2,050,184 5,017,307 5,142,121 5,605,620
Total Current Assets 4,059,887 7,056,152 7,025,286 7,543,468
Property, Plant & Equipment 84,911 158,513 252,243 252,184
Total Assets 4,180,152 7,245,461 7,278,389 7,796,512
Total Current Liabilities 1,545,098 4,155,274 3,698,853 3,910,241
Total Liabilities 1564064.00 4173512.00 3728509.00 3938839.00
Paid Up Capital 195,165 214,682 214,682 214,682
Total Equity 2,616,088 3,071,949 3,549,880 3,857,673
LIQUIDITY RATIO FY'04 FY'05 FY'06 Mar'07
Current Ratio 2.63 1.70 1.90 1.93
ASSET MANAGEMENT FY'04 FY'05 FY'06 Mar'07
Inventory Turnover (Days) 35.11 30.14 34.38 132.14
Day Sales Outstanding (Days) 0.41 0.28 0.28 18.06
Operating Cycle (Days) 35.51 30.42 34.67 150.20
Total Asset turnover 1.61 1.25 1.06 0.28
Sales/Equity 2.57 2.94 2.18 0.57
DEBT MANAGEMENT FY'04 FY'05 FY'06 Mar'07
Debt to Asset (%) 37.42 57.60 51.23 50.52
Debt/Equity (Times) 0.60 1.36 1.05 1.02
Times Interest Earned (Times) 238.66 692.84 218.58 273.63
Long Term Debt to Equity (%) 0.72 0.59 0.84 0.74
PROFITABILITY (%) FY'04 FY'05 FY'06 Mar'07
Gross Profit Margin 23.73 18.12 20.71 18.63
Net Profit Margin 14.32 13.63 13.71 13.95
Return on Asset 23.08 16.97 14.58 3.95
Return on Common Equity 36.88 40.02 29.88 7.98
PER SHARE FY'04 FY'05 FY'06 Mar'07
Earning per share 22.47 28.63 24.71 7.17
Price earning ratio 6.94 7.97 7.50 29.36
Dividend per share 30.00 27.27 27.27 0.00
Book value 134.04 143.09 165.36 179.69
================================================================
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].