Baluchistan Wheels Limited (BWHL)

Baluchistan Wheels Limited (BWHL) started its journey in 1980 in the collaboration of GKN Sankey Limited UK. The company built its plant in the industrial zone of Hub for the manufacturing of steel wheels for automobiles. With the capability to manufacture a diverse range of wheels for passenger cars, commercial vehicles, agricultural tractors and 4x4 vehicles BWHL, the firm become a serious player in the auto part industry of Pakistan.

BWHL plant that has a covered area of 16,000 square meters built on a land of 97,000 square meters is one of the modern facilities in the industry. It’s well equipped with facilities comprising of the material preparation line, heavy and light duty rim lines, a press line having presses of up to 1500-ton capacity, an assembly and welding line with CO2 and submerged arc welding machines.

The company’s manufacturing is complemented by two paint shops with seven stages pre-treatment system, and a Cathodic Electro Deposition painting process using latest paints from Kansai Paint Co. Japan. Specialized facilities for pickling and oiling, shot blasting tool, repairing and quality testing/inspection also exist at the firm. The company is a corresponding member of European Tyre & Rim Technical Organization (ETRTO,) and its quality management system is certified for ISO-9002 by AIB Vincotte of Belgium.

BWHL caters some of the major companies in Pakistan like PSMC, INDU, HCAR, DFML, Nexus Automotive, Sigma Motors, Adam Motors, Hinopak, GHNL, GHNI, Sindh Engineering, Master Motors, Afzal Motors, AGTL, MTL, etc.

Auto vendors sector in Pakistan

At the moment, Pakistan is a part of top 40 automobile producing countries; it is manufacturing automobiles in all five categories i.e. passenger cars, light commercial vehicles, motorcycles, trucks, buses, and tractors. Baluchistan Wheels (BWHL), Thal Ltd (THALL), Agriauto (AGIL), and Synthetic Product (SPEL) are leaders and listed companies.

The sector faces multiple challenges, but according to Standard Capital Securities the biggest problem is Pakistan-China FTA as many of the vendors are seeking technical assistance from Japanese corporations wherein Chinese parts could be cheaper. Likewise, auto vendors are threatened by weakening Pakistani Rupee against Japanese Yen, loose import policy on part of the government, and OEM’s hold over various auto policies.

Historical financial performance

The auto part industry’s performance is always correlated with the performances of the auto sector of a country. Similarly, the performance of Baluchistan Wheels Limited is directly related to the demand for cars and tractors in Pakistan, and any improvement or decline in auto sales have a direct impact on the firm’s sales. The year 2010 was a recovery year for the auto industry of Pakistan including BWHL. The wheel company’s sales and profits grew up until FY11 on the back of increasing sale of the cars in the country.

The firm’s top line came under pressure during the last quarter of FY11 when the Government of Pakistan raised the sales tax on the sale of tractors from zero rating to 16 percent. This action resulted in sharp fall of the tractor sale resulting in huge pilling of stock. As a consequence, the manufacturers stop/ curtailed the production of tractors. In FY12, the tractor production declined by massive 32 percent year-on-year due to the tax issues. However, the government changed its mind after witnessing a drastic drop in tractor sales during the year, and reduced the tax rate to five percent.

As per the company’s statement, the inconsistent import policy of the government in FY13 and FY14 caused the decline in overall auto production in Pakistan. The effects of this decline were visible in the top line and bottom line of FY13 that came down by 23 and 46 percent year-on-year, respectively. During FY13 however, the tractor sale improved by six percent year-on-year.

FY15 performance

After witnessing a decline for two years in its revenue, the wheel company finally came back into the game with growth in its overall consolidated revenues. Sales increased to Rs1.37 billion as compared to Rs1.14 billion in FY14- an increase of over 20 percent. Once again, higher car wheel sales helped the BWHL. However, it suffered a nine percent year-on-year decline in the tractor wheels’ sale despite the fact that the tractor production improved to 48,883 units in 2015 versus 34,521 tractors in 2014. BWHL blamed higher competition in the Tractor wheels manufacturing business for low tractor wheel sales.

The profit after taxation for BWHL was Rs96 million in FY15 as compared to Rs69 million for FY14. There was no significant increase in the gross profit due to the provisions of slows moving stock-in-trade and stores and spares. However, there was a substantial increase in the firm’s net profit due to the disposal of fixed assets during the year.

The six-month snapshot of FY16

The momentum that Baluchistan Wheels Limited started in FY15 continued in the first six months of FY16; the firm secured 18 percent year-on-year revenue growth. The increase in the top line has helped the wheel company to report Rs80 million PAT - healthy 142 percent year-on-year increase.

Major factors behind higher wheel sales to the automotive industry were Punjab Government’s ‘Apna Rozgar’ scheme, declining leasing rates and lower fuel cost. Despite the higher demand by auto industry, the sale of wheels to Truck/ Bus fell by 40 percent year-on-year. On the other hand, the sale of wheels to tractor industry has also declined by 25 percent primarily due to delay in subsidy schemes announced by the Sindh and Punjab Governments.

Outlook

The business sentiments are quite high in auto sector due to lower fuel prices and fall in discount rates. Also, the new auto policy that has recently been approved opens the door for new car companies to enter the Pakistani market. Baluchistan Wheels Limited, which is one of the major suppliers of auto wheels to the industry, is at the right spot to take advantage.

The company is also likely to benefit from higher truck and bus sale due to the CPEC projects.

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Baluchistan Wheels Limited


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                                       FY11    FY12    FY13    FY14    FY15


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Profitability Ratios


Gross margin                            18%     18%     12%     17%     15%


Operating margin                        11%     13%      4%      8%      8%


Net margin                               6%      7%      5%      6%      7%


Return on capital employed            16.3%   17.6%    3.8%    8.4%   10.3%


Return on Assets                       8.6%    9.2%    4.9%    5.9%    8.0%


Liquidity Ratios


Current ratio                          3.42    5.31    5.76    8.69    9.11


Quick  ratio                           1.02    1.35    1.69    2.75    3.95


Liabilities as a % of Total Assets    23.49   17.17   15.61    12.4     9.8


Interest Cover Ratio (Times)          14.72   11.81    8.34   28.42   38.71


Activity / Turnover Ratios


Inventory turnover ratio (Times)       2.54    2.35    1.86    1.74    2.25


Debtor turnover ratio                 11.54   11.47    8.83   11.51      22


Fixed asset turnover ratio             3.72    4.18    3.29    3.26    4.49


Price Earnings ratio                   4.48    3.76   11,70    8.27    8.08


Break up value per share              63.64   69.32      72   75.83   80.79


Earnings per Share (EPS)               7.12     7.7    4.19    5.14    7.19


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