1st phase of Expansion to improve Panther Tyres' margins

November 8, 2021 (MLN): Panther Tyres Limited (PTL), the sole manufacturer of OTR Tyres, will witness higher volumes in the forthcoming mini-season of Agri tyres due to the completion of the first phase of the expansion thus will improve the margins of the company.

While the second phase of the project is expected to be completed by 3QFY22. The third phase which is related to infrastructure development and back-end process enhancement is expected to be online by the close of this financial year. The total estimated outlay for the project is expected to be Rs3.07 billion, said the management of PTL while holding a corporate briefing session to discuss the latest financial results and future outlook.

To note, the net profit of the company declined by 57% YoY to Rs110million during 1QFY22. This reduction in margins has resulted from the sharp increase in raw material prices augmented with the exponential rise in sea freights. Moreover, energy costs also increased by 35% due to the rise in RLNG and coal prices.

During the period under review, the supply of raw materials also remained disrupted and affected the productivity of the production operations, said the Directors’ review report.

The major chunk of the cost passed on in the replacement market. However, the same couldn’t be passed on in the original equipment manufacturer (OEM) segment which amounts to 25-30% of the total sales volume for the Company.

With 80% of the raw material being imported, the Tyre industry is heavily affected by increasing international commodity prices which in turn affects the margins. However, higher export margins as compared to margins in the local market remain a hedge against the rising commodity prices and a depreciating rupee, the key takeaways covered by Taurus Securities highlighted.

Along with actively seeking new business opportunities while focusing on minimizing negative impacts and delivering positive results by leveraging a diversified product portfolio, the company is keenly working on devised strategies to restore margins. Cost optimization and cost control exercises are already underway to reduce inflationary pressures. Management expects commodity prices to fall in the second quarter and the company will be able to focus more on volumes and efficiencies.

The company expects that demand from the OEMs to remain robust in the near future meanwhile the share of exports to rise too with the devaluation of the rupee.  Hence, it is expected that the margins of the company to be around 15% in 3QFY22. However, going by the report, smuggling and under-invoicing remain a big threat as they eat up the replacement market share.

The management believes that Atlas Honda is expanding its capacity and therefore, PTL will be able to cater to the demand for motorcycle tyres. Tractor tyres are high margin products and their share in the overall profitability will be higher as Tractor OEMs market share is around 50%, 35-40% market share of Atlas Honda Limited (ATLH), 30-35% market share of Chinese motorcycles, said Arsalan Hanif, Analyst at Arif Habib Limited.

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