During 1982-84, the company inaugurated its engine and machining assembly plant. Nearly ten years later, Millat was able to launch its new assembly plant. Through the years, Millat expanded into generating sets and either acquired or set up other subsidiaries for similar business. In 1993, Bolan Casting was bought; Millat Equipment was set up later next year and in 2002, Millat Industrial Products was established. The company signed an export agreement with AGCO Corporation in Africa and since has been finding market access abroad.
Principally, Millat is involved in the manufacture of agricultural tractors, diesel engines, forklifts, and a wide range of agricultural implements. It also has material testing and gauge control laboratories. The current capacity of the company's plant is more than 35,000 units annually in a market of about 60,000 tractors.
Ownership, shareholdings and investments
Millat Tractors being the holding company has a number of unlisted subsidiary and associate companies. Millat Industrial Products Limited (MIPL), an unlisted public company where MTL holds 64.09 percent equity. The company is in the business of manufacturing of industrial and domestic vehicular batteries, cells and components. Tipeg Intertrade DMCC is limited liability Company based in Dubai where MTL holds 75 percent equity. The company trades machinery and heavy equipment.
Millat Equipment Limited (MEL) is another unlisted public company where MTL holds 45 percent equity. MEL manufactures automotive, agricultural and industrial vehicles parts and components. Bolan Castings Limited (BCL) is a public limited company and was acquired by MTL in 1993. Millat holds 46.26 percent equity in BCL. The company manufactures castings for tractors and automotive parts.
And Millat Tractors isn't stopping there. During FY17, the company signed a partner network program with a Swedish software solution company IFS for MTL's potential venture into IT solutions. The more interesting venture is into the assembly of cars and commercial vehicles. The company will be investing 18 percent (Rs 1.53 billion) in equity of Hyundai Nishat Motor (HNML). HNML is a new automobile venture between Korean Hyundai and Nishat Mills to manufacture cars and light commercial vehicles in Pakistan. Millat will now be a part of the deal.
Operational and financial performance
Though its primary operations are the manufacturing of tractors, Millat does deal in selling implements and multi-application products even if they carry only 5 percent share in the revenue stream. Whereas sales have remained consistent through the years; going between 32,000 to 35,000 selling less units in FY14 and FY16. However, revenues have remained erratic owning to the fluctuation sales tax.
The government levied a GST of 17 percent on tractors in FY11 which affected sales. It was brought down to 10 percent in FY13 but in FY14, was brought back up to 16 percent which likely causes the sales to plummet. Between FY15 and FY16, sales tax was again 10 percent and during FY17, the GST was reduced to five percent. The fall in sales tax led to an evident rise in revenues.
A more conducive agricultural policy and budget will always play well for Millat Tractors and drive its sales forward. During FY17, incentives given by the government such as subsidy on fertilizers, pesticides, and energy, and reduced mark-up rates on agricultural loans all helped boost the sector.
Whereas FY16 was not a good year for tractors-commodity prices were low, poor crop production was hurting farmers' purchasing powers. Tractors scheme implemented by the two provincial governments were not implemented. But fortunes turned around during FY17. Agricultural output brought by higher production of kharif crops led to higher sales for Millat. Revenues rose with lower sales tax compared to previous years. Meanwhile, margins also improved on account of higher localization-going from 20 percent in FY16 to 24 percent during FY17.
Though exports have a very small share in total revenues, the company entered into a licensing agreement with AGCO that would allow the company to enter exporting markets. The company has been exporting, albeit with little contribution to the top line. Between FY13 and FY17, exports share has remained less than 3 percent for Millat. Perhaps the agreement would help boost exports.
With the help of higher revenues, bolstered by improved margins, Millat saw a huge jump of 143 percent to its bottom-line crossing and surpassing the Rs 3 billion mark.
Opportunities and outlook
There are several factors and opportunities working in favour of Millat Tractors. The first is favourable government policies in the agricultural and farming sectors. If the provincial governments are able to launch successful tractor schemes, Millat will be a direct beneficiary. Farm subsidies, cheaper access to finance to farmers, and other incentives will ultimately induce demand for tractors and other agricultural equipment which Millat and its subsidiaries are in the business of.
Tractors demand is apparent. Up till 7MFY18, tractor sales grew by 45 percent with Millat's massive sales going up by 40 percent year on year. This is an impressive comeback from FY16 which saw the segment on a decline. The fruits of labour are already evident. In the 1HFY18, Millat saw a 58 percent growth in its top-line-given that sales during FY17 were pretty high to begin with. The company wrapped up the first half of its fiscal year with a 76 percent growth to its bottom-line.
The second biggest opportunity is Millat's equity contribution into the Hyundai-Nishat automotive manufacturing venture. This project has the potential to be huge in an auto industry that only has three major players. The disruption that Hyundai Nishat could potentially create in the industry is huge and Millat being part of the deal will bode well for the company's financials and its future in the larger automotive industry picture.
The third, even if an area where Millat is still a rookie are exports. The company has found market access in Middle East and African countries but it should be expanding to other markets. Exporting would keep the company on its toes and keep innovating and investing back into the business to grow in scale and lower costs. This is a promising trajectory for investment though it would require consistent technology modernization and diversification of product base.
The company could explore forward integration options venturing into agri-implements, tools attached to tractors like combined harvesters, balers and feed mixer wagons.
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Pattern of Shareholding (as on June 2017)
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Categories of Shareholders Share
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Directors, CEOs and their
spouse(s) and minor children 29.73%
>Sikandar Mustafa Khan 8.09%
>Latif Khalid Hashmi 3.61%
>Sohail Bashir Rana 5.31%
>Laeeq Uddin Ansari 7.26%
Executive/ Workers 0.50%
Associated Companies, and
related parties 1.66%
Public Sector Companies and
Corporations 4.62%
>State Life Insurance Corporation 4.62%
NIT and IDBP 0.18%
Insurance Companies 8.90%
Banks, development finance institutions,
insurance, non-banking finance companie 1.04%
Mutual Funds 4.50%
Public 46.00%
Modrabas 0.01%
Executives 0.01%
Others 2.84%
Total 100%
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Source: Company accounts
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Millat Tractors: First Half (Unconsolidated)
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Mn Rs 1HFY18 1HFY17 YoY
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Sales 18,223 11,543 58%
Cost of Sales 14,007 8,923 57%
Gross Profit 4,216 2,621 61%
Administrative 231 216 7%
Distribution 302 283 7%
Other operating expenses 301 160 87%
Finance cost 0.81 0.28 191%
Other income 555.67 265.59 109%
Profit before tax 3,937 2,227 77%
Taxation 1158 646.99 79%
Net profit for the period 2,778 1,580 76%
Earnings per share (Rs) 62.73 35.66 76%
GP margin 23% 23% 2%
NP margin 15% 14% 11%
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Source: PSX