Al-Ghazi Tractors Ltd

Al-Ghazi Tractors Limited (AGTL) is principally engaged in the manufacturing and sale of tractors, implements and spare parts. The company is a subsidiary of Al-Futtaim (LLC), while the scrip has a market cap of Rs15.38 billion with 6.26 per cent free float of shares.

The company posted net profit of Rs2.18 billion, translating into the earnings per share (EPS) of Rs37.67 in the third quarter of CY23 ended September 2022. The nine-month revenues clocked-in at Rs26.38 billion, up 73 per cent from Rs15.22 billion in the previous year.

The industry is experiencing tough times currently due to reduced economic activities, resulting into lesser demand. The ongoing inflationary pressures and elevated financing costs has hampered the auto sales.

A sharp increase in the raw material costs and the rupee depreciation has also kept the costs elevated, despite increased localisation of tractor parts.

The industry still await implementation of the agriculture package from the federal government apart from quick settling of refund claims.

The delay in releasing the sales tax refunds by the Federal Board of Revenue (FBR) has deeply impacted the liquidity position of the company, as the pending refunds from the government as of September 30, 2022 stand at Rs4.14 billion.

AGTL showed 275 per cent sales growth in December 2022 with 514 units sold. On an overall basis, during the fourth quarter of CY22, the company sold 1,038 units, compared with 2,663 units in the third quarter of CY22.

The KASB Securities expect the fourth quarter of CY22 revenues to clock-in at Rs2.8 billion and the EPS of Rs1.95, taking full-year EPS to Rs40.

The dividend announcement of Rs40 can be expected whenever the annual results are announced, offering 15 per cent dividend yield. The company via notification dated February 3, 2023, has increased the prices of tractors to pass on the costs to the customers and maintain the margins with effect from February 10, 2023.

The key risks to the company’s business include allowing import of five-year-old tractors with duty reduction, rising interest rates and inflation. The tractor sales are likely to remain under pressure till the second quarter of CY23 but will start to improve from the third quarter of CY23, as interest rates are expected to decline.

Al-Ghazi Tractors Limited is a Pakistani agricultural machinery manufacturer headquartered in Karachi with a tractor manufacturing plant located in Dera Ghazi Khan, Pakistan.

It is the manufacturer of the New Holland tractors in Pakistan with the production capacity of 30,000. AGTL was the first automobile company in Pakistan to earn the ISO-9002 Certificate. With the austerity and primacy of efficiency being settled at Al-Ghazi Tractors Ltd, AGTL’s core strategy has been to be the lowest cost producer of the highest quality products.