Loads Limited
Loads Limited (PSX: LOADS) is a prominent auto parts manufacturer and market leader in the country. The company has been in commercial production since 1985 and was first established in 1979. The company has been in the business of manufacturing exhaust systems, mufflers, radiators and sheet metal components for the growing automotive industry. Exhaust systems take up 60 percent or more of the business, with radiators taking 20 percent and the rest taken up by sheet metal.
The company received its very first order from Suzuki in Pakistan; and is now a major auto parts supplier to the company along with to Honda Atlas, Indus Motors, HinoPak, Millat Tractors, Yamaha, Mitsubishi etc. In the beginning, the company was only making car parts but soon Loads started manufacturing parts for buses, trucks and tractors as well. The company has also exported with orders for radiators to Land Rover in the UK. In 1994; Loads Limited was converted into an unlisted public company.
The company has three plants located in Korangi and Bin Qasim. It has been manufacturing parts in collaboration with major Japanese auto parts makers including Futuba, Toyo Radiator, Sankei Giken and SNIC. The company went through an Initial Public Offering (IPO) in 2016 which was put in motion for the expansion and modernization of the company’s production facilities while also easing working capital requirements. The company raised Rs1.7 billion.
Company structure and expansions
Loads was sponsored by Treet Corporation which held 20 percent share. As on June 2017, the associated company’s holdings were 12.5 percent. Chairman of Loads, Syed Shahid Ali Shah held 41.5 percent of the company’s total shares while its CEO, Munir Bana held 2.3 percent of the shares as fiscal year FY17 wrapped up. The general public held nearly 33 percent of shares.
Loads Limited is part of the Ali group that has several other major listed companies such as Packages Limited (PSX: PKGS), IGI Insurance Limited (PSX: IGIIL), and Treet Corporation Limited (PSX: Treet) within it. Loads has four fully owned subsidiaries: Specialized Motorcycles, Specialized Autoparts Industries, Multiple Autoparts Industries and High-tech Autoparts.
The recently incorporated High-tech Autoparts subsidiary was set up for the manufacture of Aluminum Alloy Wheels which are not currently manufactured in the country and is a kind of investment that puts Loads on the map in the industry. The wheels are meant to cater to Honda, Suzuki and Toyota and even some upcoming ventures for their high-end models. The total outlay of this plant which is a plot of 12 acres located in Bin Qasim was estimated to be Rs2 billion. The company acquired the machinery from Australia installed in a pre-engineered building and production is expected to commence in 2020.
Financial and operational performance
Even before being listed, Loads had a strong positioning and presence in the market. It has been catering to passenger cars, commercial vehicles as well as tractors and also supplies to one of the motorcycle assemblers in Pakistan.
Majority of its sales are made up of exhaust system sales that is Loads’ primary product where it may have nearly 100 percent market share with nearly all the three players. Radiators that carry nearly a fourth of the revenue stream are supplied to tractor manufacturers. It is also a popular product in the after-sales or replacement market where Loads is trying to gain market share.
That market is currently occupied by Chinese or other imported spare parts but where local auto parts players can find space as they manufacture the originals of these parts that are put into the locally assembled vehicles. The other main product are sheet metal components which cater to majority of the existing demand in the passenger car market.
The company has been slowly growing in revenue as well as bottom-line. In the past, schemes like Apna Rozgar Scheme or Taxi Scheme or even the Tractor Scheme has helped boost sales in the auto industry. Loads being the major supplier to most automakers enjoys any growth that happens in the sector substantially. It also has an opportunity to invest back as it gets more of the business. Load’s growth has been backed by a range of technical collaborations with Japanese companies, attempting to improve and innovate the quality of production and also venture into new territories.
In an interview with BR Research, Munir Bana told that the company had entered into more sophisticated production by acquiring robotic and laser welding technology and also added weld-penetration testing equipment to the mix.
During FY17, overall sales grew by 9 percent. Of this, exhaust systems’ sales and sheet metal components grew by 13.6 percent and 8.3 percent respectively, due to the success of the new Honda civic model though as the Punjab Taxi Scheme wrapped up, sales for the car segment had seen a decline. The latter was also the reason why Loads saw a decrease in sales for radiators.
Though the top-line is marked with a steady growth, margins were growing till FY15 but started to decline thereafter. In FY17, gross margins dropped to 12 percent due to the increase in depreciation cost on major capitalization of plant and equipment. Though the company’s profit margins during FY17 improved to 7 percent (FY16: 4%) as it accrued savings in financial charges including tax credits on listing and capital expenditure. As a result, the growth of 70 percent to the bottom line during the outgoing year is commendable.
Latest financials, opportunities and outlook
During the first quarter of FY18, sales growth was 11 percent, however by 9MFY18, this top-line growth has receded to only 4 percent year on year. This is surprising since local sales in almost all segments are seeing a boom. Passenger cars and jeeps grew by 22 percent with a 3 percent growth in 1300cc and above cars. Toyota Corolla saw a drop of 6 percent while Honda City and Civic grew by 14 percent. Slower growth in the high end segment may have affected Loads’ growth.
Meanwhile, margins have remained strong during the period despite a rise in steel prices. Global fundamentals matter as a lot of the manufacturing is dependent on imported steel and other metal commodities. When globally, prices take a hike, local auto parts see their costs per unit rise. Same happens if the currency against the dollar or yen take a tumble. These will continue to be a threat for most auto parts makers. Though, if steel prices go south, it would most certainly boost local margins.
The second threat out of the control of Loads is the currency depreciation. Since Dec-17, the rupee has tumbled against the dollar by nearly 15 percent—this will further make import expensive and will again impact those dependent on imported goods for their production.
On the other hand, the wave of high growth in the automotive industry—not just in the passenger cars or jeeps segment but also in the light and heavy commercial vehicle segments, and tractors are positive signs for Loads to growth its benefits. The company has been venturing in high-end parts through investments—the expansion in alloy wheels is one example which will open doors for higher quality sales for Loads.
The company may even be able to capture a higher market share through investment and modernization and improving the quality of its production.
This is especially important given so many new automotive players are entering the market and will have to localize as fast as possible to get a portion of the growing pie.
Loads can position itself as a market leader for major components. Meanwhile, the demand in the spare parts market is also a burgeoning one because of growing car buyers. For local cars, consumers
prefer to opt for parts manufactured by original parts makers, instead of the second-tier parts makers or imported varieties and this is where Loads comes in.
Fundamentally, Loads is best positioned in both demand markets. While a lot of parts manufacturers exist across the country mostly SMEs, Loads has earned a good reputation in the industry—opportunities remain numerous.
