Lahore, October 10, 2019 (PPI-OT): The adjustment in ratings reflects the realignment of the company’s positioning in the current operating and economic environment of the country. Depreciation of Pak Rupee and interest rate hike, coupled with softening of demand were the key challenges. Despite the overall economic slowdown, the company has managed to restrict its top-line loss to 11% through focusing on replacement market. The rise in cost of production resulted strain on the company’s profitability. To address this, the company has passed on most of the impact of increased cost. This will aid future profitability of General Tyre. Meanwhile the company has undertaken multiple initiatives which will help reduce its operating cost and supplement plant efficiency.
The company has also envisaged a fresh business strategy with more focus on replacement market, farm segment and other avenues driving local demand. The company has a strong foothold in its respective industry comprising 4 wheeler tyres for cars, LCVs, tractors, buses and trucks. The company is the sole manufacturer of passenger car radial tyres catering the Original Equipment Manufacturers’ (OEMs) market. Two wheeler market, in contrast, displays a broader competitive landscape wherein General Tyre holds a relatively small market share. In last 3-4 years company has invested significantly in modernisation and capacity enhancement of its plant through financing.
Due to slow down in economy in current year, the company could not get much benefit of its expansion therefore overall debt servicing capacity of the company decreased. However, the Company is well poised to take benefit from future revival of demand from both OEM and RM market. Monetary easing and stability in exchange rate in future is expected to bode well for the company. Recent drive of Government to curb smuggling may support company in replacement market. The Company is in close coordination with new auto players and has started supplying tyres to one of the new auto players.
A well-devised governance framework alongside experienced management team is considered positive for the ratings. Association of General Tyre with Bibojee Services (Private) Limited and Pakistan Kuwait Investment Company Limited is also a consideration. The company’s core competence lies in its technical collaboration with Continental AG; Germany (one of the world’s leading tyre manufacturer) which assures adherence to international quality standards. Cautious management strategies amidst changing industry environment are critical. The ratings are dependent on the company to uphold and improve its business risk vis-à-vis financial risk profile. Revival of the demand driver is crucial. Moreover prudent management of financial affairs remains important.
For more information, contact:
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425