Industry

Budget 2023 to bode well for tractor sector

Karachi, May 31, 2022: The recent increase in minimum wheat support price will strengthen farmer income and support tractor sales in the near future.

In the medium term, the demand is expected to gain more momentum, as the sowing season for Rabi crops approaches in 2QFY23.

Also, regarding Federal Budget FY23 expectations for the sector, partial withdrawal of tax reliefs cannot be ruled out.

Moreover, to support farmers, some provincial governments have set precedents of Tractor schemes, which could be replicated in the Federal Budget FY23.

In addition to that, any form of steps taken to increase crop yields and/or provide cash subsidy to farmers would also have a positive impact on tractor sales

Price increase leads to margin recovery in 3Q

The tractor sector results for 3QFY22 show both listed players witnessing a contrasting trend. MTL’s earnings remained stable on a sequential basis (-3% QoQ), however, AGTL’s bottom-line expanded by 56% during the same period. The combined PAT of the sector (MTL, AGTL) increased by 15% QoQ to Rs2.82bn.

Sector volumes increased 5% QoQ, where AGTL improved its market share to 43% in 3QFY22, from 30% during 2QFY22.

On the other hand, sales for MTL dipped during 3QFY22 as the company opted for an earlier than planned turnaround of its facility.

As a result, the sector revenues increased 12% QoQ, compounded by the price increase announced in Nov-2021.

After posting eight-quarter low margins of 18% in 2QFY22 (rising freight rates and commodity prices), the sector’s margins recovered close to its historical average of 21% in 3QFY22.

It is pertinent to highlight that PKR devaluation impact on tractors remain relatively limited, given its 90%+ localization.

Delay in Sales Tax refunds denting working capital cycle

The tractor sector has been facing liquidity pressures over delays in Sales Tex refunds since the past two years. To recall, the industry is subject to 5% GST, where the difference between input and output tax is to be refunded by FBR.

Currently the industry’s sales tax refunds have stacked up to around Rs9bn, out of which a major chunk (more than Rs6bn) is due to be paid to MTL, while AGTL’s pending amount accumulates close to Rs3bn. The industry stakeholders have raised the issue on multiple forums with the authorities and are demanding a swift resolution of the issue.

Related Articles

Leave a Reply

Your email address will not be published.

Back to top button
Close