Loads Limited targets Rs29.17/share by December 2025

February 06, 2025 (MLN): Loads Limited (PSX: LOADS) is poised to reach a price target of Rs29.17 per share by December 2025.

At its current price, the stock offers a compelling 55% upside potential and is trading at an FY26 P/E of 4.7x, according to a report by Chase Securities.

Monetary easing by the SBP, driven by declining inflation, is expected to boost auto sales, especially in the sub-1000cc segment.

LOADS has successfully renegotiated its product pricing in the exhaust system and sheet metal segments, leading to gross margin expansion from 13% to 26% in recent quarters.

After a period of losses, the company has returned to profitability, and with a resurgence in auto demand, it has a clear runway for sustained cash flow generation.

As per the company’s last analyst briefing, LOADS’ subsidiary, HiTech Alloy Wheels, is in negotiations for an outright sale.

If completed, the sale will significantly strengthen the company’s balance sheet, provide growth capital, and potentially eliminate restrictive loan covenants, paving the way for future dividend payouts.

The company’s technological capabilities have been developed in partnership with leading global players, including SNIC Co., a subsidiary of Suzuki Motor Corporation.

This enables LOADS to remain at the forefront of product innovation and quality standards.

Loads Limited, Pakistan’s only tier-1 exhaust system manufacturer, was incorporated in 1979 and began production for Pak Suzuki in 1985.

It later expanded to serve major OEMs like Honda, Toyota, and Millat Tractors.

Listed on PSX in 2016, it raised Rs1.7 billion and expanded capacity by 119% using IPO proceeds.

Anticipating growth from CPEC, Loads established HiTech Alloy Wheels (HAWL) as a subsidiary, investing Rs4bn through debt.

However, declining auto sales, rising interest rates, and competition from new entrants led to financial strain.

By FY23, high finance costs and project delays forced a write-down on HAWL loans, resulting in losses exceeding Rs1.3bn.

The automobile manufacturing sector in Pakistan is currently on the verge of recovery, as it begins to recover from economic slowdown and LC restrictions on imports of CKD kits.

Going forward, Chase Securities believes that automobile sales will rebound, and over the next 3 years, will hit a new peak, driven by a growing working-class population.

While the space has now evolved with new entrants such as Haval, KIA, Hyundai, and others, the players present have changed.

Chase Securities expects that sales in the lower segments will not be disrupted by these new entrants.

This will be supported by the tough financing cap of Rs3 million, which leads to only low-engine capacity cars being viable for consumers to finance.

The benefits presented to the new entrants under the Auto Industry Development Policy 2021-26 are set to expire in June 2026.

After that, Chase Securities expects manufacturers to begin the localization of their models on a war footing.

Chase Securities further revealed that automobile sales are directly correlated to GDP per capita.

With Pakistan now entering the growth stage, Chase Securities expects the sector will see demand rise to new peaks again.

The automobile manufacturing sector in Pakistan is currently on the verge of recovery, as it begins to recover from economic slowdown and LC restrictions on imports of CKD kits.

If Pakistan is able to achieve this, it would propel automobile sales to about half a million cars per year at the current population level of 240mn.

The company now stands in 2025 with a strong core business of exhaust systems, radiators and sheet metal components.

With auto sales expected to continue posting growth, Loads is poised on the verge of an auto industry boom.

As of 30th September 2024, the company’s current liabilities exceed its current assets by Rs800mn and it requires cash to be able to cater to higher demand from its customers.

The company’s management has worked tirelessly in recent quarters to remedy the cashflow issues and the same can be seen in its improving cash flow ratios, which have recently undergone a substantial change.

In the last few quarters, the company has experienced a rise in both days payable outstanding and days inventory outstanding, indicating a cash flow crunch.

However, things have now turned a corner, with the cash conversion cycle normalizing to about 50 days as of the last quarter.

Similarly, the company’s debt has also reduced substantially in the last 10 quarters from Rs4bn to Rs2bn.

Chase Securities expects that the anticipated increase in auto sales will require more debt to be taken on by the company.

However, Chase Securities believes that the sustained profitability will then lead to a higher return on equity and lower debt levels.

Additionally, the company has recently renegotiated its prices for exhaust systems (annual report 2024) and sheet metal components, which has led to an expansion of its margins in the last 2 quarters reported.

Management confirmed that this enhancement is sustainable in the company’s most recent corporate briefing session.  

Risks

Chase Securities believes that while the shift toward battery electric vehicles (BEVs) is a significant concern, the adoption of purely electric vehicles in Pakistan will be hindered by several factors.

These include the lack of charging infrastructure, which will remain a major obstacle, as well as the absence of a localized supply chain for batteries and charging equipment, which will slow the pace of adoption.

Additionally, the lack of financing incentives and consumer subsidies will keep the initial cost of ownership out of reach for most consumers, further impeding the transition to electric vehicles.

The largest determinant of sales for Loads is in the small car segment, where Suzuki models like Alto, Cultus, and Swift are present.

These are all cars with a full tank range of 400-500 km, while equivalent battery electric vehicles have a range of up to 200km.

Chase Securities believes this means that for the low-income consumer, who buys a small car as their only car, it will not be viable to own BEVs.

Pakistan is a lower middle-income country, and EV penetration will remain low in passenger cars in favor of hybrids due to their lower initial cost.

A reversal in the monetary easing cycle or an economic slowdown could impact sales in the auto sector, thereby leading to a downside risk on Loads.

The company also currently has a director's loan of Rs700mn due as of 30th September 2024.

There is a risk that the director could choose to convert this into equity, thereby diluting minority shareholders.

The inability to arrange sufficient financing to fund working capital needs could materially impact the company's ability to enhance profitability in the years to come.

There is a substantial risk of new entrants in multiple business lines for Loads, particularly about radiators and sheet metal components.

Despite some localized models present in the market, it is possible that new entrants may not need to localize their vehicles until after 2026, as the auto policy gives them a 20-30% duty benefit until then.

The government may move ahead with its plans for a new energy vehicle policy, but Chase Securities expects that the new policy will aim to push new entrants toward localization by June 2027.

As such, Chase Securities expects the impact to be minimal on Loads.

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