·         The General Tyre and Rubber (GTYR) held its analyst briefing session today to discuss its 1QFY22 results. To recall, the company posted NPAT of PkR131mn (EPS: PkR1.07) as compared to PkR126mn (PkR1.03) in same period last year, up 4%YoY and loss of PkR64mn (LPS: PkR0.52) in previous quarter.

·         The gross margin of GTYR has significantly improved in 1QFY22 (GMs: 13% in 1QFY22 vs 7% in 4QFY21) due to the laggard impact of cost pass-on to the OEMs. Going forward, the management expects to sustain the gross margin of 13-14% in upcoming quarters as the rising raw material costs have been passed on to the OEMs in the month of Oct and Nov as well as in the replacement market segment. The revenue contribution from OEM and replacement market segment is 40-60.

·         According to the management, the company is operating at almost full capacity (max capacity utilization that can be achieved is ~85-90%). The plant is operating 7 days a week to cater the demand which is on the upper end as we are witnessing the boom in auto industry. In order to operate at full capacity, the company substitutes the gas shortfall with LPG that is relatively costly.

·         According to the management, GTYR has started to supply its products to the new entrants among which Prince Motors has become a major customer. In addition to this, the company seems optimistic to close the deals with other new entrants. Since there are capacity constraints, the company plans is planning to expand its capacity as well as increase its efficiency by replacing the machines.

·         The company will start the production of OTR (Off the road) tyres to cater the demand from construction segment which is currently on the rise. Besides, the government’s efforts to curb the smuggling activities and increasing prices of imported tyres (not to forget the 100% cash margin requirement for imports) has provided a level playing field for the local players.

Courtesy – AKD Research