January 27, 2021 (MLN): Pakistan’s equity market has been grabbing the attention of investors, both domestically and internationally, for all the right reasons. Amidst a pandemic that proved deadly for not only humans but economies worldwide, local bourse showed strong resistance by delivering unsuspected growth and continues to do so.

Cashing on the same opportunity is Panther Tyres Limited, previously known as Mian Tyre and Rubber Company Limited, which is all set to go public as it plans to issue 40 million ordinary shares at a floor price of Rs. 47 through Initial Public Offering (IPO). Representing about 28.57% of the total Post IPO Paid-up Capital, the entire issue of 40 million shares will be offered through book building. 30 million ordinary shares, i.e. 75% of the total issue, will be allotted to successful bidders and the remaining will be offered to retail investors.

The purpose behind the issue is to partially fund the company’s expansion project and enhance the production capacities of Tyre Sets and Tubes through the import of state-of-the-art 4 Roll Calendar Line from Italy. Moreover, the funds will be used to bring in new technology for tyre manufacturing. The company will also be importing fully automated Banbury Mixer from Farrel Limited, a company in the United Kingdom, to reduce material wastages and promote energy efficiency.

While the purpose seems convincing enough as to why one should put their money in Panther Tyres, there are a number of other reasons why this IPO seems to be a great opportunity for investors to make quick bucks. IPOs in Pakistan started gaining popularity last year after 4 companies, which not only went public successfully but also saw their shares being oversubscribed by a significant margin.

Furthermore, almost all these companies proved to be a good investment choice as they provided fruitful results in the form of healthy capital gains. With the IPO fever continuing for most investors, the same expectations have been placed on Panther Tyres, who according to almost all brokerage houses, is likely to be a huge success.

Talking to Mettis Global about the overall reaction of the market, the Chief Financial Officer of Panther Tyres, Mr Ghulam Abbas said: ‘There is a lot of excitement within the market regarding the IPO, as well as a positive reaction from investors. We believe that the shares of the company will be oversubscribed by a good margin, but the price at which that will happen is currently uncertain’.

Secondly, the tyre industry in Pakistan is experiencing moderate growth owing to a rise in demand for vehicles nationwide. The availability of auto finance, depreciation in PKR, government reforms and policies have all helped in alleviating the troubles that the auto sector was facing in the last few years.

Speaking of government policies, the sector is also likely to benefit from the duties and taxes imposed on the import of tyres. Besides, the recent devaluation of PKR against USD has weakened the price competitiveness of importers compared to local manufacturers anyway, thereby reducing the viability of imported tyres and tubes for cost-conscious segments such as LCV, tractors, trucks and buses. A further devaluation in USD will provide a huge opportunity for the company to fill the gap generated in the market with a competitive cost advantage.

‘The tyre market in Pakistan is progressive and growth-oriented, with new opportunities arising for existing players continuously. The policies by the state to put an end on the smuggling of tyres and impose duties/taxes on imports has given a huge opportunity to tyre companies to increase their competitive advantage’, the CFO said.

The financial standing of the company is quite robust as well, as the topline income of the company grew by 18.5% in FY2020, 14.1% in FY19 and 18.1% in FY18. Likewise, the net profit showed a growth of 2.2% in FY20 and FY19 each, and 4.2% in FY18. According to the company’s prospectus, the topline is likely to show a stellar growth of 41.8%, whereas the earnings are expected to increase by 5.3% in FY21. While the company saw an increase in its financial gearing during FY20, it is likely to show healthy improvement as the Debt-to-Equity ratio is expected to decline from 1.14 in FY20 to 0.69 in FY21.

There’s no doubt about the fact that there is immense competition within the tyre industry, with General Tyres leading the sector for many years. However, with the introduction of state-of-the-art 4 Roll Calendar Line, Panther Tyres will have a strong competitive advantage against both the local as well as international players operating in the country.

As of now, the company holds a market share of about 40% in both two-wheelers and three-wheelers segment, however, according to several brokerage houses, that is expected to grow significantly too as a result of an increase in production capacity of tyres and tubes by the company post-expansion.

Commenting on the same, the CFO said: ‘We are certain that the measures taken by the government are going to result in a substantial growth within the tyre industry, which we will be able to benefit from in the form of import substitution. This will also help us in retaining our growing market share.

Currently, the Company is exporting two-wheeler, three-wheeler, light commercial vehicles, tractor and truck & bus bias tyres to 12 countries across the globe. Most of the Company’s products are EU E-8 marked i.e. they are certified for European standards and can be exported to European markets. With the increase in the production of tyres and tubes, the company will be able to expand its foothold further in international markets thus increasing its profits.

Moreover, due to a consistent rise in the demand for tyres, foreign investors are also showing interest in the IPO, which is likely to strengthen the growth of the company in the upcoming years. When asked about the same, the CFO said that there was some interest being shown by investors from China and Hongkong, as well as several other countries, but the significance of that interest can only be measured once the IPO is over.

When asked about the future outlook and growth strategies of the company, particularly with regards to a plausible Joint-Venture, the CFO of Panther Tyres said that a Joint Venture is definitely a part of the company’s long-term strategy and vision, but not of the existing expansion project in any way. While some meetings have taken place to discuss the possibility of a Joint Venture, nothing concrete has been discussed or finalized yet.  

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