LAHORE: Ghandhara Tyre and Rubber Company disclosed its financial results for Q3FY23 to the Pakistan Stock Exchange (PSX) on April 27. The company’s earnings plummeted on both a quarter-on-quarter (QoQ) and year-on-year (YoY) basis, resulting in a loss of Rs 278.4 million for Q3FY23 and a cumulative 9MFY23 loss of Rs 238.3 million.
Q3FY23 earnings
Ghandhara’s sales decreased by 12.82% QoQ from Rs 3.971 billion to Rs 3.46 billion. This is also 27.03% YoY lower than the previous Rs 4.745 billion. The cost of goods sold (COGS) decreased by 11.16% QoQ from Rs 3.43 billion to Rs 3.05 billion and by 26.65% YoY from the previous Rs 4.15 billion. COGS as a percentage of revenue increased to 88.1%, representing an increase in both QoQ and YoY from the previous 86.45% and 87.64%, respectively. Consequently, the gross profit margin (GPM) decreased to 11.9% compared to Q2FY23’s 13.55% and Q3FY22’s 12.36%.
In absolute terms, gross profit decreased by 23.39% QoQ from Rs 538 million to Rs 412.16 million. This is also 29.75% lower YoY compared to Q3FY22’s Rs 586.7 million. Other notable changes include the company’s other income decreasing by over a third QoQ, falling by 34.4% from Rs 30.134 million to Rs 19.766 million. This is also 8.38% lower YoY compared to the previous Rs 21.5 million.
The company’s interest expense increased by 6.46% QoQ from Rs 301.4 million to Rs 320.927 million, representing a significant increase of 55.67% YoY from the previous Rs 206.15 million recorded in Q3FY22. As a result, Ghandhara’s earnings before tax decreased by a massive 1052.53% QoQ from a profit of Rs 44.5 million in Q2FY23 to a loss of Rs 424.268 million in the current quarter. However, Ghandhara’s tax expense did decrease in Q3FY23, falling by 749.64% on a QoQ basis from an expense of Rs 22.4 million to a rebate of Rs 145.851 million and by 401.18% on a YoY basis from Q3FY22’s tax expense of Rs 48.427 million.
Ghandhara concluded the quarter with a final loss of Rs 278.417 million, representing a 1360.38% QoQ decline from its previous profit of Rs 22.09 million and a 391.97% YoY decline from the corresponding Rs 95.359 million recorded in Q3FY22.
9MFY23 earnings
Ghandhara’s sales revenue decreased by 17.67% YoY from Rs 12.9 billion to Rs 10.623 billion, while COGS decreased by 19.15% from Rs 11.274 billion to Rs 9.11 billion. As a result, COGS as a percentage of revenue decreased YoY from 87.3% to 85.73%, and the GPM increased YoY from 12.7% to 14.27%. Overall, gross profit decreased by 7.5% YoY from Rs 1.639 billion to Rs 1.516 billion.
Other income decreased by 16.7% YoY from Rs 83.9 billion to Rs 69.9 billion; however, other income as a percentage of operating income increased YoY from 8.33% to 12.37%. Ghandhara’s interest expense increased significantly by 78.89% YoY from Rs 508 million to Rs 908.765 million, resulting in earnings before tax decreasing by 168.3% YoY from a profit of Rs 504.477 million in 9MFY22 to a loss of Rs 345.221 million.
Ghandhara’s tax expense decreased significantly by 163.67% YoY from an outlay of Rs 167.846 million to a rebate of Rs 106.874 million, resulting in a final loss of Rs 238.347 million for 9MFY23, representing a contraction of 170.8% compared to the profit of Rs 336.631 million recorded in 9MFY22.
What do the experts say?
Mustafa Mustansir, Director of Research and Business Development at Taurus Securities, elucidates the current state of affairs at the company. “The company’s revenue and volumetric growth have been stymied by economic headwinds such as a decelerating economy, elevated interest rates, rampant inflation and currency depreciation,” he expounds.
Mustansir also highlights the impact of original equipment manufacturers (OEMs) on the business operations. “Passenger car OEMs have been compelled to observe non-production days due to the unavailability of CKD kits. This has adversely impacted Ghandhara’s OEM sales,” he adds.
According to Mustansir, the replacement market has also borne the brunt of these economic challenges. “The diminished purchasing power of consumers amid soaring inflation, widespread floods and torrential rainfall has taken its toll on the replacement market. However, Ghandhara has managed to bolster its exports to Rs 150 million by primarily targeting customers in the African region,” he explains.
Despite this growth in exports, costs have escalated significantly. “The confluence of surging raw material prices, rupee depreciation and fierce competition in the market has resulted in a substantial uptick in costs,” Mustansir adds.
Mustansir is of the opinion that relaxing import restrictions would provide a much-needed impetus to Ghandhara’s business operations. “Once the restrictions are lifted, OEMs are expected to resume operating at full capacity. Ghandhara stands to be the primary beneficiary in this scenario,” he explains.
Furthermore, Ghandhara is also poised to benefit in cases where prices for imported tyres are on an upward trajectory. “Its market share is expanding due to competitive pricing. However, the proliferation of smuggled tyres continues to pose a threat,” muses Mustansir.
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