October 25, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained the corporate rating of Gandhara Automobiles Limited (PSX: GAL) at ‘A’ in the long term and ‘Al’ in the short term with stable outlook. This was revealed in the latest press release issued by PACRA.
GAL is primarily a multi-brand certified automobile assembler in Pakistan. This rating reflects the company’s suitable business profile and recognized presence in Pakistan’s automotive sector.
The company has connections with well-known multinational automobile manufacturers such as JAC Motors, Dongfeng Motor Corporation, Renault Trucks, and Chery Automobile Co.Ltd.
The company has consolidated its market position through the assembly and staged manufacturing of JAC trucks and Chery SUVs, the import and sale of finished products of Dongfeng and Renault trucks, and the assembly of other commercial MVs under contract agreements with Gandhara. Industries Limited, Ghandhara DF (Pvt.) Limited, Bibojee Services (Pvt.) Limited.
During FY23, growth in Pakistan’s truck and bus sector remained historically slow as it is directly related to economic activity.
The local truck sector experienced a significant decline in FY23, with a decline of 45.15% year-on-year, total sales of buses decreased by 6.03%, and sales of Jeeps and pickups also declined by 33.31% year-on-year.
Sectoral performance remained uncertain and margins remained under pressure due to macroeconomic challenges, which impacted costs across the business.
However, GAL was able to achieve a sales growth of 87.2% as of end-June 2023 due to the sale of more than 1,200 units of the newly launched Chery Tiggo vehicle.
Even though the company’s net revenue numbers increased, it did not reflect well in the overall profitability matrix.
A company’s gross profit and net profit are affected by increases in business costs such as raw material price increases, minimum wages, energy price increases, and finance costs, respectively.
Going forward, the company intends to cover key risks and uncertainties by securing long-term growth momentum across its product lines.
GAL’s financial risk profile is considered adequate as both cash flow and debt coverage metrics showed modest improvement.
Additionally, the company financed the expansion of assembly and sales of Chery Motors (launch of Tiggo 4 Pro and Tiggo 8 Pro in the domestic market) through borrowings availed at preferential interest rates under SBP’s TERF scheme.
The amount of leverage in the company’s capital structure is at a moderate level. GAL has a competitive edge, strong brand value and strong sponsor support.
This rating is dependent on the company’s ability to maintain its business and financial risk profile amid the current challenges facing the automotive and related industries.
Improving margins and intact coverage remains essential. A key element is GAL’s stance on working capital management. Additionally, management’s ability to maintain market share during times of tight demand is critical.
Copyright Metis Link News
Post date: 2023-10-25T15:12:51+05:00