The management of Service Industries Limited held a Corporate Briefing Session today to discuss the company’s performance in CY20 and outlook.

Highlights:

· To recall, the company posted a consolidated profit after tax of PKR 1,324mn (EPS: PKR 56.29) in CY20 against PKR 1,359mn (EPS: PKR 58.40) in CY19, down by 2.5% YoY. This was owed to a 10% YoY decline in the footwear sales segment given lockdown imposed locally and internationally in order to contain COVID-19. Whereas, Tyre Division witnessed 12.74% YoY growth. The group’s sales comprise of 69% local sales and 31% export sales.

· Segment-wise Footwear, Tyre/Tube, Service Genuine Parts and Technical Rubber Products contributed 24%, 67%, 7% and 2%, respectively to the total revenue in CY20.

· The company is the largest exporter of footwear and Tyres/Tube from Pakistan comprising of 44% and 55% total of Pakistani footwear exports and Tyres and Tubes exports, respectively during CY20. The company believes that it has a leading market share in Footwear and Motorcycle Tyres/Tubes in Pakistan. Meanwhile, in the Motorcycle Spare Parts business, SRVI has the third largest market share.

· Revenue of the Footwear segment comes from exports and local sales (institutional, wholesale and retail business) both. Currently the company exports footwear to Germany, Italy, Afghanistan, Spain, France, Switzerland, UK, Ireland, Australia, Russia and USA. On the local side, institutions such as Pakistan Forces and a large footwear retailer are SRVI’s key customers. Moreover, in retail business the company operates 46 outlets locally through its retail brands SHOEBOX and KLARA.

· Whereas in the Tyre and Tube Segment, revenue is driven from export sales, local OEM’s and local replacement market. In motorcycle OEM and replacement market the company has a market share of 40%-50% each. The company currently manufactures tyres and tubes for cycles, motorcycles, rickshaws, tractors and trucks/buses.

· The company acknowledges that auto assembling sector is thriving since new players have entered the market. Despite this, the company is in no position to execute any new plan to cater passenger car segment.

· Meanwhile in the Service Genuine Parts Segment, the company executes third Party manufacturing using its distribution network, which now consists of 11,000 retailers.

· SRVI management informed that the company passed on the impact of rubber price increase during CY20. Furthermore the company is expected to again transfer the impact of rise in rubber prices after six weeks.

· The company informed that it is paying a custom duty of 16% and 10% on import of carbon black and tube wall, respectively. Furthermore the company expects the government to provide a relief to exporters which import raw materials.

· The company is expected to expand tyre/tube business and motorcycle spare parts business during CY21.

· The company will also go for further equity investment in Service Long March Tyres (Pvt) Ltd.

· The company expects Service Long March Tyres (Pvt) Ltd plant to come online in Aug’21.

· Moreover, the company is also focusing on exploring new international markets in order to grow its exports.

Courtesy – AHL Research