Today, General Tyre and Rubber (GTYR) hosted an analyst briefing to review its 1QFY22 financial results. In the preceding quarter, the company reported NPAT of PkR131mn (EPS: PkR1.07), up 4 percent YoY from PkR126mn (PkR1.03) in the same time last year and a loss of PkR64mn (LPS: PkR0.52) in the previous quarter.
Due to the lagging impact of cost pass-on to OEMs, GTYR’s gross margin rose significantly in 1QFY22 (GMs: 13 percent in 1QFY22 vs. 7 percent in 4QFY21). In the future quarters, management intends to maintain a gross margin of 13-14 percent, as higher raw material costs were passed on to OEMs in October and November, as well as in the replacement market segment. The OEM and replacement market segment contributes 40-60% of total revenue.
According to the management, the company is operating at almost full capacity (max capacity utilization that can be achieved is ~85-90%). The plant is operating 7 days a week to cater the demand which is on the upper end as we are witnessing the boom in auto industry. In order to operate at full capacity, the company substitutes the gas shortfall with LPG that is relatively costly.
According to the management, GTYR has started to supply its products to the new entrants among which Prince Motors has become a major customer. In addition to this, the company seems optimistic to close the deals with other new entrants. Since there are capacity constraints, the company plans is planning to expand its capacity as well as increase its efficiency by replacing the machines.
The company will start the production of OTR (Off the road) tyres to cater the demand from construction segment which is currently on the rise. Besides, the government’s efforts to curb the smuggling activities and increasing prices of imported tyres (not to forget the 100% cash margin requirement for imports) has provided a level playing field for the local players.