LAHORE - The tractor industry’s revenue has reduced by almost 50 per cent due massive decline in sales .
Al-Ghazi Tractors Limited revenue has declined by 57 percent to Rs1.4 billion during fourth quarter of 2015. The company has witnessed about 58 percent drop in tractor sales volumes to 1,889 units due to non-execution of announced subsidy schemes by govt of the Punjab as well as Sindh.
In the same way, Millat Tractors Limited revenue declined by 47 percent to Rs3.1 billion during 2QFY16 due decline in tractor sales volumes by 48 percent.
The MTL announced 2QFY16 earnings of Rs229m against Rs552m in the same quarter last year. This result was in-line with expectations. The company also announced an interim cash dividend of Rs20/share in 2QFY16 compared to Rs25/share in the same quarter last year.
Experts attributed this decline to huge drop in tractor sales volumes to 3,524 units.
They said that Al-Ghazi Tractors Limited (AGTL) announced 4Q2015 earnings of Rs249m against Rs563m in the same quarter last year. The company surprisingly also announced a final cash dividend of Rs25/share, taking full year dividend to Rs85/share compared to Rs25/share in 2014. The company paid out significant higher cash dividend than earnings given its large cash balance.
To recall, provincial Govt of the Punjab and Sindh announced subsidy schemes to provide 25,000 units and 29,000 tractors at subsidized rates in their budgets of FY16. However, schemes have been delayed substantially, thus, momentum of sales stalled as farmers defer their normal buying in anticipation of subsidized tractors.
Further, significant decline in commodity prices particularly agricultural commodities have substantially reduced purchasing power of farmers. Gross profits of the company declined by 53 percent YoY to Rs372mn, however, gross margins improved by 209bps due falling steel prices, experts believe.
Distribution and administrative expenses also increased by 93 percent YoY and 76 percent YoY to Rs50m and 81m during 4Q2015. On quarter-on-quarter basis, company witnessed similar declining trend and posted 11 percent fall in revenues to Rs1.4bn due to decrease in volumes from 2,131 units in 3Q2015 to 1,889 units in 4Q2015.
AGTL posted a revenue growth of 9 percent YoY to Rs9.6b in 2015 because 1H2015 was extremely good before the announcement of subsidy schemes in June 2015. However, this growth momentum reversed after the announcement of schemes in June, thus, sales volumes plunged by 48 percent in 2H2015.
To recall, provincial Govts of the Punjab and Sindh announced subsidy schemes to provide 25,000 units and 29,000 tractors at subsidized rates in their budgets of FY16. However, schemes have been delayed substantially, thus, momentum of sales stalled as farmers defer their normal buying in anticipation of subsidized tractors.
Further, significant decline in commodity prices particularly agricultural commodities have substantially reduced purchasing power of farmers.
Gross profits of the company declined by 53 percent YoY to Rs512mn while gross margins declined by 223bps in 2QFY16.
Distribution and administrative expenses declined by 55 percent YoY and 13 percent YoY to Rs69mn and 96mn during 2QFY16.
On quarter-on-quarter basis, company witnessed similar declining trend and posted 20 percent fall in revenues to Rs3.1bn due to decrease in volumes from 4,392 units in 2QFY15 to 3,524 units in 2QFY16.