The Automobile industry has provided direct and indirect employments to thousands and pumped in billions of investments and contributed billions more in taxes and duties to the National economy. It has also saved billions in import substitution laying down foundation for many down-stream related industries. The demand of automobiles in Pakistan has increased tremendously in the last few years due to good macro economic management and availability of cheap auto financing.
To keep up with this demand the main car manufacturers including Dewan Farooq Motors have embarked on an aggressive production enhancement strategy. It has also increased its production capacity to 16,000 units’ p.a.Our automobile market is likely to stabilize in terms of demand and supply in the year 2005 with the increase in production by all major car manufacturers and import of cars. Additionally, as a result of liberalization of import policies and reduction in import duties almost 40,000 new and used cars are expected to be imported during the fiscal year 04-05 which will also abate the demand supply gap. Leasing Companies and financial institutions have played a pivotal role to push the auto sales during last couple of years and are expected to play this role in the years to come. Although the mark rates have of late seen aggressive slashing and come down to single digit figures, the mark-up rates on auto financing still remains much to high shying away many potential buyers as compound interest in majority of the leasing options add up to over 30 percent depending on the payment period.A large number of used cars are already landing in Pakistan. These cars are being imported through Gift scheme and Transfer of Residence scheme. Both schemes were originally designed for the benefit of the expatriate Pakistanis, but now are being used as commercial business by car dealers.Dewan Farooque Motors Limited was incorporated in Pakistan on December 28, 1998 as a public limited company. The shares of the company are quoted on all the Stock Exchanges in Pakistan. The Company commenced commercial production through the interim facility from January 01, 2000. The main facility came into commercial operation from January 01, 2001. It is the baby of the Auto and Allied sector.Its 4-wheel drive ‘Sportage’, sedans like ‘Spectra’ ‘Pride’ and ‘Santro’ has been well received by the public not to mention the pick-up ‘Shehzore’. The response to ‘Santro Club’ launched in October 2002 has been very encouraging and this has enhanced capacity utilization and profitability of the Company. This success has added a new model to the family “Santro Exec 1.0 EFi” The major import of new cars is being carried out by Dewan Motors who have re-launched the Mitsubishi brand cars in Pakistan. Earlier Dewan had launched the BMW series in Pakistan for the first time. To help customer cope up with increased cost of fuel and the Country to save valuable foreign exchange, natural gas versions of Spectra, Classic and Santro models were also launched. With these new versions of various models, Dewan Motors is the only Company in the Country, which offers a wide range of vehicles, which run on natural gas. These models were well received by the market. The market domination of Hyundai Shehzore in the 1-ton Pickup Truck segment remained exceptional for the fourth consecutive year. The market share during the financial year was 51% with almost 3000 units sold. The market performance of Grace Van and KIA Grand Sportage also remained satisfactory. Apart from the vehicle sales the after-sales parts operations also showed improvement as compared to the previous year. To ensure availability of Hyundai/Kia spare parts in the remote areas where dealerships are not present, the Company has appointed authorized parts jobbers. This strategy will meet customers’ requirement of after-sales parts in those areas.
FUTURE OUTLOOK
Economic Activity in the country will continue to improve in the coming years. The Engineering Industry is pleased about the reduction in custom duty over import of Plant and Machinery along with exemption of sales tax. The investment in auto Sector will cross Rs.100 billion by next year, which stands at Rs.52 billion at present. This rapid growth has pushed the industry’s production by 36% during the last ten months and is expected to reach 160,000 units by the end of the year 2006.This apetite has been fueled by a fairly low interest rate on loanable funds and aggressive marketing in consumer finance by commercial banks.
FUNDAMENTAL ANALYSIS:
The FY 2004 was dominated by positive changes and the Company sold 12,222 vehicles as against 8,193 vehicles the previous year. The increase shows acceptance of the product. There was an overall increase in sales, gross profits, operating profits and profit after tax. The Earning per Share was Rs.3.04.The gross profit for the nine month period ended March 31, 2005 was Rs.710.407 million and the profit after tax was Rs.184.513 million. 10,885 units were sold as compared to 7994 units during the same period last year, thus showing 36 % increase. Santro and Shehzore remained major contributors to the increased sales volume. The earning per share was Rs.2.39 compared to Rs.1.51 for the previous year period. This is 58% higher than the corresponding period.
TECHNICAL ANALYSIS:
DEWAN MOTOR closed up at Rs.28.80. Volume was 490% above average (trending) and Bollinger Bands were 78% wider than normal. Short-term traders should pay closer attention to intraday levels while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trends. The share is currently 28.6% above its 200-period moving average and is in an upward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect very strong flows of volume into Dewan Motor (bullish). Our trend forecasting oscillators are currently bullish on the share and have had this outlook for the last 21 periods. Our momentum oscillator is currently indicating that Dewan Motor is currently in an overbought condition. BUDGET 2005-2006In the budget 2005-2006 the Customs duty on cars from 1301cc-1500cc has been reduced from 70% to 50%, from 1500cc-1600cc decreased to 65% from 70% and, from 1601cc-1800cc reduced to 65% from 80% and the duty on cars with higher engine capacity has been slashed to 75% from 100%. A 6% with holding tax has been imposed on purchase of new cars. The impact of the budget is slightly negative on the Auto Sector but all loads shall conveniently be passed on to end users.
Blog By:
Saqib
msaqib9@hotmail.com
realities911@yahoogroups.com
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