Ghandhara Nissan Limited
Ghandhara Nissan Limited (PSX: GHNL) is a manufacturer of a range of vehicles within the automotive industry of Pakistan. It is part of the Bibojee group of companies, incorporated in 1981, starting production in 1996. The company had a license for the distribution of Nissan passenger cars under a technical assistance agreement Nissan Motor Japan and a Joint Venture Agreement with Nissan Diesel Co. Japan for light and heavy duty commercial vehicles. The company also built alliances with UD Trucks Corporation for UD trucks and buses. More recently, the company entered into an agreement with Dongfeng and formed a wholly owned subsidiary. The company has two plants, for trucks and cars each located at Port Qasim.
The company stopped manufacturing Nissan cars—Nissan Sunny—14 years after production activities first started and the car assembly plant has remained pretty much inactive since 2010. Because of underutilization of this plant, the company has contracted out the assembly line over the years to its sister company Ghandhara Industries for Isuzu trucks. Meanwhile, the company also manufactured Land Rovers having contracted the plant out to Sigma Motors.
On a single shift basis, the company has a production capacity of 4800 trucks and buses of UD, Isuzu and Dongfeng. Meanwhile, the capacity for the car plant is 6000 vehicles on single-shift basis.
Ownership and partnerships
Bibojee Service is the holding company for Ghandhara Nissan and within the group, Ghandhara Industries, General Tyre and Rubber. Gammon Pakistan and a host of textile and cotton mills are included. In July 2013, Ghandhara Nissan formed Ghandara Dongfeng Pvt. Ltd with equity investment of Rs59.99 million. The subsidiary will assemble Chinese Dongfeng vehicles. The company started with import of these vehicles first.
As at July 2017, majority (60.3%) of the company’s shares were held by the holding company while UD Truck Japan held 8 percent of the shares. The general public held nearly 14 percent of the company’s shares at year end FY17.
During FY17, the company announced that it would no longer be dealing in UD trucks as the models were discontinued globally. In order to attempt to fill the vacuum created by this, the company entered into an agreement with the Chinese JAC motors to assemble light commercial vehicles.
The latest development in Ghandhara Nissan’s operations is the announcement just last week that together with Nissan Motor Japan; the company would be bringing Datsun model cars into Pakistan. With a total investment of Rs4.5 billion spent over the next four years. According to a statement released by the company’s management, the project is expected to create 1800 more jobs. Under the 2016 auto development policy, Ghandhara Nissan will be able to import auto parts at much lower customs duty for three years.
Operational and financial performance
Not only has Ghandhara graduated from releasing blurry scanned copies of balance sheets to appropriately designed annual reports, the company also has had a shift in its financial accounts. Uptil FY12, Ghandhara’s top-line was inconsequential, incurring losses every other year depending upon dwindling sales and rising costs of goods. The company however sees a turn in its fortunes as it entered FY13. Production improved while sales of both assembled as well as imported Completely Built Units (CBU) grew as well. Between FY14 and FY15, the company had doubled his revenues and grown gross margins from 18 percent to 20 percent. This came at the back of greater truck and bus demand. The addition of Dongfeng to the fleet has only helped pad the bottom line.
However, because of the discontinuation of PKD trucks in Feb-17, the company saw a drop in its revenues during FY17 of 3 percent year on year. UD took up a major portion in sales and it will likely put a dent to the company’s revenues going forward. The company is now relying on Dongfeng as well as JAC commercial business though this is likely to take some to pick up. The company did not produce any Land Rover during FY17 and now this plant will be refurbished for the new Nissan Datsun cars which are expected to launch next year.
According to the company’s annual report of FY17: “Against the production capacity of 4,800 (2016: 2,500) trucks and buses on single shift basis, the company produced 4,923 (2016: 2704) trucks and buses of UD, Isuzu and DongFeng. It also processed 4,616 (2016: 2,496) truck cabs through paint shop. Against the designed annual production capacity of 6,000 vehicles at car plant, on single shift basis, the company assembled no (2016: 169) vehicles of Land Rover”.
Though, the CBU business of the company is small compared to the assembly business, the company’s imported content is not only CBU based. Ghandhara also imports parts for local assembly which affects its margins if costs go up. Though the latest custom duty for parts has been changed to 30 percent from 35 percent, cost of imports often get affected by rupee and dollar parity and the rising commodity prices like steel. Gross margins squeezed to 19 percent during FY17, from 22 percent during FY16.
Opportunities and outlook
During the first half of FY18, the company saw a drop in earnings after the discontinuation of the UD trucks, having forgone that market. The JAC trucks, according to the company’s reports, that were introduced performed remarkably well while the Dongfeng CBU business together with contract assembly also performed as usual. Dongfeng has a price point advantage from vehicles imported from other countries while JAC trucks are also expected to create its own market space.
The trucking business has already been picking up owing to a rise in construction and infrastructure activities and a boost in the logistics sector. Not only CPEC, but greater consumerism and retail, and growth in others sectors are giving rise to trucking demand. The market size is expanding and Ghandhara’s business will shine in the category given its reasonably priced vehicles.
On the other hand, Nissan’s entry back into the passenger car sphere is going to be a game changer for the company as the car market is also expected to grow manifolds. Nissan is only one of the new players entering the car space—Renault, Kia and Hyundai are the other promising new entrants. Though Nissan Sunny had a tough run the last time it was introduced in Pakistan, the Datsun cars may have a different experience as the appetite for cars is huge in the country. The existing players are not keeping up with the demand for cars as they continue to sell like hot cakes with 5-6 six months of waiting time for some cars. Moreover, incoming used cars are going up to 70,000-80,000 now as we move into FY18. All these dynamics play well for Ghandhara’s investment into the car plant under the new auto policy.
Some work will have to be done to determine the best mix of car models for the Pakistani market which is unique in its own right if compared to other economies. The demand will likely be in the smaller models that are easy to use and can adjust in deep traffic jams and thin lanes and alleyways that are a distinction of the burgeoning population of Pakistan’s urban centers. The suitability of Ghandhara’s model pick and the speed with which it will localize would determine the company’s future in car business.
