Auto volumes may not decline during FY23 despite issues

Karachi, May 20, 2022: THALL has been increasing its footprint in the auto engineering segment through multiple agreements with the new and existing auto players.

The engineering segment (58 percent of company sales) posted sales of Rs 6 billion which is up by 30 percent YoY during the quarter owing to rising demand from the automobile segment which grew by 22 percent during the same period.

Under this segment the company produces various parts for automobiles such as thermal systems, engine components and electrical systems.

After Tucson, the company has procured the Wire Harness business for Elantra while at the same time the company is engaged with PSMC for its new models as well.

Business with HCAR has seen sizable growth while business for new models of Corolla and IMV have been secured. On the operations side, the company managed smooth supply to the OEMs despite multiple supply chain issues.

With regards to Thal Boshoku, the company has received encouraging response from the new and existing businesses for their seat business.

Going forward, the management has been in discussions with OEMs regarding industry concerns and claims that although margins will remain under immense pressure owing to the PKR depreciation and rising freight rates, volumes on the other hand might not decline YoY during FY23 despite rising issues.

Meanwhile, Thall held its 3QFY22 Analyst Briefing to discuss key highlights and the outlook of the business. On a standalone basis, the company posted an impressive EPS of Rs 16.51, up 34 percent YoY.

Consolidated earnings clocked in at Rs23.06/share, up 14 percent YoY, taking 9MFY22 EPS to Rs59.17, up 19 percent YoY.

“Going forward, the management does not expect a slowdown in volumes, however the company’s Engineering segment along with the Paper and Jute business may witness pressure on margins owing to PKR devaluation and rising freight rates,” said Wasil Zaman of JS Research.

Also, the company has investments in SECMC and ThalNova where the first phase of the Thal mining project has been completed, the second phase is expected to achieve COD by 2HCY22.

Jute business witness’s growth in market share

The Packaging segment posted sales of Rs4.3bn, which is up by 30 percent YoY, in line with overall growth in the company. Under this segment, the company produces papersacks, jute bags and laminates.

The segment experiences seasonal variance where sales usually drop during 1Q of the fiscal year followed by sequentially increasing trend thereon.

With timely procurement of raw jute, the segment saw improved margins in the jute business. Moreover, the business witnessed an increase in market share from its historical range of 25 percent-38 percent to 46 percent during 3QFY22.

Moving forward, the Packaging segment may witness pressure on margins owing to PKR devaluation and rising freight rates as both the paper and the jute business are dependent on imports.

On the other hand, the woven polypropylene business has commenced its operations with a capacity of 90mn bags per year. The company had invested Rs 1.7bn for the project.

Investments in the Energy sector

THALL holds 11.9 percent stake in SECMC and 26 percent in ThalNova Power Thar Pvt Ltd through its wholly owned subsidiary Thal Power Pvt Ltd. SECMC posted revenue of Rs9.7bn and a PAT of Rs3.1bn during 1QCY22.

Delay in the tariff true up by the Thar Coal and Energy Board is affecting the company ability to pay dividends. Profitability of the company was adversely impacted during 3QCY21 owing to foreign exchange losses.

First phase of the Thal mining project has been completed while the second phase is expected to achieve COD by 2HCY22. Coal price for SECMC stood at US$58/MT for the first phase which will decrease in the second phase and will be half for Phase 3.

During phase 2 the company will supply 1.9mn tons each to ThalNova Power Thar and Thar Energy while under phase 3 the company further plans to supply 3.8mn tons to Lucky Electric’s 600 MW power plant at Port Qasim.

Timelines of ThalNova project completion is expected to be impacted owing to the impact of COVID in China and the subsequent lockdown in Shanghai while the imposition of 17 percent GST, which was previously exempt for Thar IPPs, may cause financial obstacles as well.

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