The General Tyre and Rubber Company of Pakistan Limited (GTYR) conducted its corporate briefing session today to discuss the key outcomes of 1QFY21. To recall, the company posted a PAT of PKR 125.97Mn (EPS: PKR 1.03), compared to PAT of PKR 15.87mn (EPS: PKR 0.13) in the same period last year. The management did not announce any dividend payout for 1QFY21.
The following are key takeaways:
The management stated that they manufacture international standard tyres for which they have partnered with Continental AG located in Germany. The company’s products range from motorcycle to tractors with the passenger car segment leading the sales. The company mainly caters to the Original Equipment Manufacturer (OEM), Replacement Market(RM), Government and Export markets.
In FY20, the management focused heavily on the export market and as a result, the export sale mix increased to 1.6% of the total sale (0.8% in FY19)
Further, the RM segment has overtaken the OEM segment in terms of sales (RM 54% & OEM 40%) in FY 20 due to weak auto sector performance in the prior year and focus of the company on the RM sector compared to FY 19 (RM 43% & OEM 53%).
The management is trying to diversify its sales mix to reduce sensitivity to the OEM sector, with a focus on government tenders.
The company is supplying to new market entrants i.e KIA and Hyundai and actively marketing to any potential OEM.
The consumer sentiment in the SUV sector is at an all-time high, GTYR is developing and marketing specialized tyres to SUV manufacturers as the market potential is huge.
The management views the farm tyres sector to improve due to higher agriculture growth rate and Government FY20 agricultural package. The sector is presently dominated by General and Panther tyres both accounting for 50% of the market.
As around 90% of the raw material is imported, the company’s gross margins faced heavy pressure from the fluctuating exchange rate and decrease in supply as several international suppliers shifted focus to supplying gloves and masks during the pandemic.
The bottom line was also affected due to removal of PKR 3/Unit subsidy on electricity, increase in Gas tariff by up to 50% and removal of 10% tax credit on the BMR project worth PKR 5Bn.
The current year lower performance was mainly attributed to the closure of operations for 10 weeks due to the Covid 19 pandemic.
The company kept its performance in check due to the government measures against the smuggling of tyres in Pakistan, mainly from the Afghan border. The management is optimistic that the government will crub smuggling and therefore the topline will become sustainable.
The company is presently operating at around 70% utilization and can safely scale to 100% (3.9Mn Units/Annum) when required without any additional Capex.
The new entrants in tyres market do not pose a major threat immediately, as both Service – Long March Tyres and Daewoo – Double Star Tyres joint ventures plant to manufacture Bus and Truck Radial tyres, which is not a major segment of GTYR.
The company is open to joint venture programs if the deal caters to a viable market and improves the company’s product portfolio and quality.
(BMA Capital Management Ltd.)