Turnaround in engineering businessArchive
Nothing could have been a better gift for the shareholders of Thal Limited on its 50th anniversary than the sharp rise in the sales of its engineering segment on the back of recent turnaround in the fortunes of the domestic automobile industry.
Thal is a diversified conglomerate having manufacturing facilities in Karachi (engineering products like car air-conditioners, radiators, wiring systems and engine components), Muzafarrgarh (jute products), Hub (laminate sheets) and Gadoon and Hub (paper sacks). Apart from these areas, Thal’s subsidiaries include Makro-Habib Pakistan, Pakistan Industrial Aids, Noble Computer Services, and Thal Boshoku Pakistan.
The sales of the company’s engineering segment rose by well over a fifth to Rs5.46bn in the first half of current financial year to December 2015 as auto industry grew by 66pc during this period. (However, the sales turnover of this segment had grown by a hefty 56.4pc to Rs9.7bn in the last financial year to June 2015 from Rs6.20bn a year earlier.) “Growth in the automobile industry has indeed benefitted our company a great deal as we produce components for all three car makers in the country — Toyota, Honda and Suzuki,” Asif Rizvi, Thal chief executive, told Dawn by telephone from Karachi.
The automobile industry has seen a robust growth during the last two years or so on the back of launch of new models by Toyota and Honda, and huge order by the Punjab government to Suzuki under its self-employment scheme for jobless educated youth in the province.
“We expect our sales of automobile components grow further as ‘generic’ car sales increase with improvement in the economy as well as in law and order situation in the country,” Rizvi asserted, implying the automobile industry will sustain its growth even without Punjab’s self-employment scheme that has brought windfall for Suzuki.
The spike in sales from the car component sales have slightly pushed Thal’s overall revenues during the first half of the current financial year 2015/2016 to Rs6.98bn from Rs6.62bn a year ago (Consolidated net revenues nonetheless decreased by 8pc to Rs8.02bn from Rs8.32bn during the period).
It’s sales from the building materials and allied products segment dipped by 23pc to Rs1.92bn from Rs2.50bn during the period, mainly because slowdown in its jute business. (The sales of this segment had expanded by a modest 7pc to Rs5.8bn in 2014/2015 from Rs5.4bn the previous year.
“Our packaging, especially jute packaging, suffered a huge setback on account of Bangladesh’s decision to implement restrictions on jute exports. We expect the ban to be a temporary correction. Once the jute imports reopen our jute business will also be back on track,” Rizvi said.
Thal traditionally holds almost a third of domestic jute market share besides exporting jute sacks to other countries.
Though the operating profit surged by a half to Rs1.72bn from Rs1.15bn, the firm’s pre-tax profit stagnated at Rs1bn owing to one time payment of Rs598m to its subsidiary Metro Habib Cash and Carry due to closure of one of its store in Karachi under a court order.
The company’s sales revenue has shown an overall growth of 38pc over the past six years with a slight dip in the years 2013 and 2014 on account of lower sales volume in building materials and allied products segment and declining demand of cars. Sales grew dramatically by over a third to Rs15.56bn last year to June 2015 from Rs11.62bn with the rising sales of the cars in the country.
According to the annual report for the last year, the shareholders’ equity has increased significantly since 2009/2010. The share capital of the company, for example, increased because of bonus shares issued during 2010/2012. Its reserves have almost doubled from Rs5.4bn in 2010 to Rs10.7bn in 2015.
Non-current liabilities mainly comprising deferred tax liability and long-term finance rose in 2010 through 2012. But long-term loan obtained in 2008 and 2010 to purchase shares of Makro Habib Pakistan was paid off in 2013.
Current liabilities of the firm increased from Rs1.7b in 2010 to Rs1.9bn in 2012 mainly owing to current portion of LTF and payment due for purchase of shares of Makro Habib Pakistan. After repayment of LTF in 2013 and payment due under agreement for purchase of shares of Makro Habib Pakistan in 2014, current liabilities decreased to Rs1.3bn in 2015.
During past six years property, plant and equipment have increased by 23pc, most of which was on account of purchase of plant and machinery. Long-term investments have also significantly spiked to Rs4b in 2015 from Rs3.4b in 2010 due to investment in shares of Sindh Engro Coal Mining Company and Thal Boshoku Pakistan.
Current assets mainly comprising stock in trade,, trade debts, short-term investments and cash and bank balance registered a growth of 79pc on account of short-term investments and cash and bank balance.
Cost of sales has increased during the past six years on account of raw material costs and inflation. The company’s gross profit has ranged between Rs2bn to Rs2.5bn since 2010. Consequently the liquidity position has shown an upward trend in the past six years.
Rizvi said the management planned to invest more money in packaging and printing and auto parts in the near future. “We have constantly been investing, expanding and diversifying and will continue to do so in future.”
Published in Dawn, Business & Finance weekly, March 28th, 2016