General Tyres & Rubber Company (Gentipak) is one of the leading producers and suppliers of quality tyres in Pakistan. The company is a public listed concern with majority of its shares held by Bibojee Services Ltd, Pak Kuwait Investment Company (Pvt) Ltd and National Investment Trust.
The company derives its operational technology from CONTINENTAL AG, Germany's top most tyre manufacturer, under a long-term technical service agreement. CONTINENTAL AG is also one of the shareholders of Gentipak. Gentipak's manufacturing plant is spread over a wide area of 25 acre in the suburbs of Karachi. The company started its commercial operations with an initial annual capacity of 120,000 tyres. However, over the years, the company has gone an extra mile to enhance its production capacity which now clocks in at two million tyres per annum.
The company produces wide range of tyres which falls under five broad categories: passenger car tyres, light truck tyres, truck and bus tyres, tractor front and rear tyres and rickshaw tyres. Besides, the company has also launched new featured products such as Eurostar, Euroglide and Euro Kompact.
The major domestic customers of Gentipak includes Toyota, Honda, Pak Suzuki Motor Company, Hino Pak, Ghandhara Industries, Ghandhara Nissan, Al-Ghazi Tractors, Millat Tractors, to name a few. Apart from meeting local demand, Gentipak also exports its products mainly to the Middle East countries. The company is also exploring other markets for export. The company's widespread network includes its plant, its head office in Karachi, three regional offices and a complex of over 100 dealers spread across the country. With its diverse network, Gentipak provides livelihood to over 1,800 people.
Performance Brief, FY12: In FY12, company's top line grew by four percent YoY, to tally Rs 7.8 billion which is so far the highest net revenue achieved by the company. The sales growth comes on the heels of three percent uptick in the sales volume. During the period under review, company sold 1.59 million tyres as against 1.55 million sold in FY11.
The year didn't prove to be all heart for the company whereby its production and sales activities came to a halt due to uncertainty on the issue of sales tax on the tractors for the first half of the year. Moreover, due to unabated electricity and gas loadshedding, the company was forced to shut down its operations for one day in a week. Consequently, there was an increase in the scrap besides the under absorption of overheads which led to high per unit cost. Due to high cost of production, company's gross margin slipped to 12.79 percent in FY12 as against 13.35 percent during the same period last year.
Above and beyond the setbacks discussed above, the company incurred enormous admin, distribution and marketing cost to introduce new designs. Moreover, the company had to dispel some fallacies prevailing in the market about company's products. All these factors took its toll on the operating profit which saw a YoY dive of 12 percent. To add insult to the injury, the financial cost surged by 20 percent due to additional borrowings undertaken by the company in the first two quarters of FY12 as its inventory was stuck-up on account of negligible sales in the tractor tyres category.
The company witnessed another bad break by incurring a loss of Rs 0.18 million from its investment in the associated company. The company couldn't militate against so many downbeat forces and thus ended up making a YoY decline of 22 percent its bottom line.
Performance Trail (FY09-FY11): By and large, company's top line and bottom line illustrate to pursue an upward trajectory over the years. A meticulous review of the company's performance over the stipulated period (FY09-FY11) gives a feeler that FY09 passed as one of the harsh periods in the company's history. Although the top line witnessed a YoY rise of 16 percent, however the volumetric analysis reveals that company could sold 1.3 million tyres during the period, which is down 18 percent from FY08.
This volumetric plunge is backed by 35 percent YoY decline in the sales to OEMs due to reduced demand of Cars/LCVs during the period. Company's cost of production also remained edgy on account of low capacity utilisation due to abridged demand. Besides, peak in the international crude oil prices also took its toll. Company also had to borrow excessively amid high interest rate backdrop due to inventory being tied up. These adverse factors culminated into a loss of Rs 109 million in FY09.
In FY10, company's performance rebounded to a great extent. Sales geared up by 14 percent YoY. Rise in the sales volume particularly emanated from the growth in the automobile sales during the period. In absolute terms, sales volume gushed by 19 percent to tally Rs 6.35 billion.
Although cost of sales increased by 12 percent due to increase in production rollout, but due to commendable capacity utilisation, the company was able to achieve economies of scale, mustering low cost per unit. During FY10, finance cost also took a 14 percent dive owing to normality in interest and rupee parity value which became helpful in controlling the aggregate financial cost. Taking all operational aspects into contemplation, the company concluded FY10 garnering an EPS of Rs 3.65 as against a loss of Rs 1.84 in FY09.
FY11 was marked by unprecedented downpour in the country followed by an imposition of 17 percent sales tax on the farm tractors which filched the demand of tractor tyres. Despite the off-putting circumstances, the company managed to post a top line growth of 18 percent partly due to rise in sales volume and also due to upward revision in prices. However, high cost of production resulted in the drop in company's margin.
In consequence of the aforementioned factors, the pre-tax profit of the company jumped down to Rs 395 million, symbolising a three percent decline.
Liquidity: Albeit, the company's current ratio touts a satisfactory position over the years. However, if we compare current ratio with quick ratio, there is a huge disparity ie the current assets drop to almost half if we deduct the inventory. This is symptomatic of the poor liquidity position of the company. In each year, the company holds more than normal amount of inventory due to dwindling demand situation prevailing in the market. This puts company in hot water and calls for immediate corrective actions as the company is highly leveraged with D/E ratio surpassing two in all the years.
Future Prospects: With the resolution of the issue of Sales Tax on tractors in the second half of the period under review, the company received considerable orders from tractor OEMs and similar trend is expected to continue in the future too.
Over the years, the company also suffered from decline in sales from auto manufacturers on account of unparalleled influx of imported used cars which marred the local industry thereby hurting the demand for auto parts including tyres. However, the government decision to reduce the age limit of imported cars proved to be a silver lining in the cloud.
With the above factors substantiating a dazzling future for the company, the trend of dumping of tyres and the hazard of under invoicing is still raging, thus blighting the industry performance. Reportedly, the smuggled tyre constitutes two-third of the market as compared with locally-made tyre that is standing at one-third share. This is not only impairing the industry but also putting a huge dent on the exchequer by way of taxes and duties that cause evasions of hundreds of millions of rupees every year.
Thus, now the ball is in the government's court. Any encouraging policy from the government's end will decide the future of the industry which at the moment portrays a murky picture.