The company is a market leader in the production of rickshaws and also exports to markets facing competition from India which is a dominant rickshaw manufacturer in the world. Sazgar exports to Japan, Afghanistan, Egypt among other countries.
Shareholdings and stock performance Nearly 67 percent of the company's shares are held by the Directors, CEO and family, with 42 percent of the shares held by the CEO, 12 percent by an Executive Director and 6 percent by the Chairperson of the company (see tables). Habib Bank Ag Zurich, Dera Dubai, under the head of Financial Institutions held 8.3 percent of the shares as at June 2016. Meanwhile, the general public held 19.52 percent of the shares of the company.
Sazgar's stock price climbed from Rs30 in January 2016 to Rs107 in November; a growth of over 250 percent. It widely outperformed the KSE-benchmark index. The favorability can be associated to the announcement of the company in September of 2016, that the company will undergo expansion, and set up additional production facilities at its current location in Raiwind.
The three-wheeler industry and Sazgar's expansion plans Mainly due to urbanization and the sheer increase in population, three wheelers have a growing market. In cities, the lack of public transportation has boosted the demand of three-wheelers significantly over the years, and it doesn't seem like the demand for rickshaws would be displaced once the new mass-transit systems are functional. Rickshaws can be used for smaller distances; feed into the mass transit networks (Green line and Circular railways in Karachi, Metros in Islamabad, Lahore and Multan) by transporting people to and from the bus/metro line/railways stops.
It may appear that rickshaw demand may plummet now that there are more cars on the road-local car sales and imported used car sales are at their peaks; car financing is higher than ever-and ride-sharing services such as Careem and Uber have carved a growing and highly receptive market for themselves, but that won't happen. Uber and Careem both have separately announced plans to bring the rickshaw option to their fleet. Since, these rides would be cheaper and more convenient for the consumers (they arrive at the doorstep), it is possible some of the passenger traffic from buses may even shift to rickshaws though the fare difference may prove to be a deterrent.
On the other hand, the fact that consumers can now travel in the comfort and safety of cars through these rides sharing apps at competitive rates; those travelling in rickshaws may start to shift. However, this share would be very little. Rickshaws remain a primary mode of transportation in major growing cities such as Karachi and Lahore.
With the demand projections in mind, the company announced it would expand its capacity of production from 20,000 to 30,000 investing Rs330 million in its production facility. The financing will come from debt and equity-20 percent and 80 percent equity. The equity will be arranged internally. The company bought 27 acres of land for this expansion. Since the company is running at 90 percent of the capacity, the expansion comes just in time.
Financial and operational performance Reported figures retrieved from Pakistan Automotive Manufacturers' Association (PAMA) show production went from 9,800 units in 2008 to 18,000 in 2016, which are the highest numbers in the company's history.
Since 2011, which is the data that we are reporting in this brief recording, the selling prices have not gone up much if sales and revenues are compared through the years. They went up in 2013 but were brought down in subsequent years.
Revenues went up from Rs2.5 billion in FY11 to Rs2.8 while sales grew from 15,442 units to 17,405 units - both revenues and sales units grew by 13 percent. Auto parts and home appliances take up a very small share of the total business. Home appliances have decreased in the past year. Tractor wheel rims sales are dependent on tractor sales. Tractor sales fell in FY16 as did the orders for wheel rims.
During the period between 2011 and 2016, fiscal year 2013 saw a profound drop in revenues due to lower sales but the company recovered in FY14. The company's margins have decreased during this period-from 12 percent in FY12 to 9 percent in FY15 and 10 percent in FY16.
Due to higher indirect expenses, after-tax profits jumped from Rs91 million to Rs126 million between FY11 and FY12 but fell significantly in later years only recovering somewhat in FY16 clocking at Rs107 million. Profit margins also plummeted as a result.
Snapshot of first half of FY17 and outlook The company announced its half yearly result in a PSX notice on Monday reflecting in its financial statements a growth that if the company is able to maintain for the next year, it will enter a new league. Though revenues rose by 39 percent between 1HFY16 and 1HFY17, going from Rs1.0 billion to Rs1.5 billion and cost of sales jumped at the same rate; a control over indirect expenditure translated to a 138 percent growth in after-tax profits. Gross margins grew from 9 percent to 10 percent while profits went up from Rs25 million to Rs58 million in 1HFY17.
Tractor sales have been increasing due to a turnaround in the agriculture sector; given a favourable budget, and lower taxes. Sales rose by 80 percent in 1HFY17 year-on-year. This would boost Sazgar's business for tractor wheel rims.
The demand and competitive pricing of Sazgar rickshaws will push up its sales significantly, but mostly once the expansion of 10,000 units come through. As a primary means of travel, rickshaws may lose a small market share to ride sharing apps carving a market out for themselves. Since the sharing economy is just beginning to develop in Pakistan and many factors remain undetermined-for instance, the demand and the displacement of demand for rickshaws and buses-it would be difficult to say for certain what impact rickshaws will have in terms of demand. Perhaps because of rising incomes and massive urbanization (higher than any country in South Asia), Pakistani population will need all that it can get and different transportation modes will be welcome.
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Sazgar Engineering Works Limited
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Rs (mn) 1HFY17 1HFY16 chg
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Sales 1,519.5 1,091.5 39%
Cost of goods sold 1,366.8 990.8 38%
Gross profit 152.7 100.8 52%
Distribution & marketing cost 35.0 28.8 21%
Administrative expenses 31.9 28.0 14%
Other operating expenses 6.4 8.1 -22%
Other operating income 1.6 2.4 -34%
Finance cost 0.7 2.0 -67%
Profit Before tax 80.4 36.3 122%
Taxation 22.0 11.7 88%
Profit After tax 58.4 24.6 138%
Gross margin 10.05% 9.23% -
Net margin 4% 2% -
EPS (Rs) 3.25 1.37 137%
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Source: PSX notice
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Sazgar: Pattern of Shareholding (as at June 2016) Shares %
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Financial institutions of which 1,494,000 8.31
Habib Bank Ag Zurich, Dera Dubai 1,494,000 8.31
Directors, Chief Executive, Their Spouse
And Minor Children of which 11,994,921 66.74
Mian Asad Hameed- CEO 7,562,967 42.00
Mian Muhammad Ali Hameed- Director 2,104,336 12.00
Mrs. Saira Asad Hameed- Chairperson 1,143,975 6.00
General Public 3,508,280 19.52
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Source: Company Accounts
Copyright Business Recorder, 2017