PACRA maintains entity ratings of Ghandhara Automobiles

October 25, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Ghandhara Automobiles Limited (PSX: GAL) at "A" for the long term and "Al" for short term with a stable outlook forecast, latest press release issued by PACRA showed.

GAL is principally an authorized automobile assembler of multiple brands in Pakistan. The ratings reflect its adequate business profile and accepted presence in the automobile sector of Pakistan.

The company holds connections with renowned multinational automobile manufacturers like JAC Motors, Dongfeng Motor Corporation, Renault Trucks, and Chery Automobile Co.Ltd.

The company has solidified its position in the market through the assembling and progressive manufacturing of JAC trucks and Chery SUVs, the import & sale of Dongfeng and Renault trucks in complete built-up units, and the assembly of other commercial MVs under contract agreements with Ghandhara Industries Limited, Ghandhara DF (Pvt.) Limited and Bibojee Services (Pvt.) Limited.

During FY23, the growth in the trucks & buses sector of Pakistan remained historically laggard, as it is directly related to economic activities.

The local trucks segment experienced a massive decline in FY23 as it fell by 45.15% YoY, total buses sold declined by 6.03%, while sales of jeeps & pickups also fell by 33.31% during the same period last year.

The sectoral performance remained uncertain and also kept the margins under pressure owing to macroeconomic challenges, thereby affecting the overall cost of doing business.

However, GAL managed to achieve topline growth of 87.2% at the end Jun’23 on account of 1200+ units sold of newly launched Chery Tiggo vehicle.

Despite, augmentation in the company’s net revenue figure, it was not translated well in overall profitability matrix.

Gross and net profits of the company are affected by the increased cost of doing business such as high raw material prices, increase in the minimum wage, energy prices, and finance costs, respectively.

Going forward, the company intends to cover principal risks and uncertainties by securing long-term growth momentum in its entire product line.

The financial risk profile of the GAL is considered adequate as both the cash flows and debt coverage metrics witnessed slight improvements.

Further, the company funded its expansion for assembling & distribution of Chery vehicles (launch of Tiggo 4 Pro & Tiggo 8 Pro in the domestic market) by means of debt availed at concessionary rates under SBP's TERF scheme.

The amount of leverage in the company’s capital structure stands at moderate levels. GAL possesses a competitive edge, high brand value, and solid sponsorship support.

The ratings are dependent on upholding the company’s business as well as financial risk profile amidst current challenges faced by the automobile & allied industries.

Improvement in margins and intact coverages shall remain imperative. A key element is the GAL’s stance on working capital management. Moreover, management’s ability to sustain its market share during the demand crunch is quite crucial.

Copyright Mettis Link News