Sazgar bounces back in Q2FY23 with six fold increase in quarterly earnings

LAHORE: Sazgar Engineering Works Limited released their earnings for Q2FY23 to the Pakistan Stock Exchange on Wednesday. The company has managed to increase its quarterly earnings six fold by ending the quarter with a profit after tax of Rs 68 million, compared to the Rs 11 million they earnt in Q1FY23. This amounts to increases of 518.62% and 119.34% Quarter-on-Quarter (QoQ) and Year-on-Year (YoY) respectively.  

Sazgar’s half yearly earnings for FY2023 now stand at Rs 79 million. This is a 15.07% YoY contraction from its Rs 93 million over the same period last year. 

The bulk of the increase comes from Sazgar seeing its sales revenue double from Q1FY23. Its sales revenue has increased by 112.19% from Rs 1.5 billion in Q1FY23 to Rs 3.1 billion in Q2FY23. The increase in sales is likely attributable to Sazgar’s Haval H6 line of vehicles. The four-wheel segment accounts for 54% of Sazgar’s revenue, based on its annual report for 2022. Sazgar’s three-wheeler sales dropped by 24% QoQ. Q2FY23 three-wheeler sales stand at 1,675 units compared to the 2,193 units sold in Q1FY23 based on the Pakistan Automotive Manufacturers Association’s sales figures. 

The H6, their flagship offering, transitioned from a completely built-up unit (CBU) to a completely knocked-down (CKD) one. Sazgar also added a hybrid variant to the lineup in Q2FY23 to take the title of being the first, and only till date, automotive company to have built a CKD hybrid. 

These additions and revisions in their lineup are the likely reason for their cost of sales increasing by 119.27% QoQ from Rs1,337,357,547 to Rs2,932,457,584. The rise in the cost of goods sold has also seen their gross profit margin decrease QoQ from 10.98% to 8.01%. Sazgar’s likely push for its H6 lineup is also evident from the 41% QoQ increase in its marketing expenses from Rs 53.9 million to Rs 76 million. The marketing expense also represents a 84.36% YoY increase. 

One interesting finding in Sazgar’s earnings is its decline in the ‘other income’ category. The Rs 1.79 million made represents a 8.98% QoQ decline, and a 52.24% YoY decline. Sazgar breaks away from other industry players such as the Big 3 in this regard. 

Looking ahead, it is unclear whether Sazgar will be able to replicate this success in Q3FY23. This boils down to the general macroeconomic condition across Pakistan. The Pakistani Rupee’s free fall that began on January 26 has led to industry-wide upward price revisions. Sazgar also increased the prices of their entire Haval H6 lineup by upwards of Rs 1 million. These industry wide price increases coincide with Pakistan seeing the highest inflation levels in nearly five decades.