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PACRA Maintains Entity Ratings of Ghandhara Tyre & Rubber Company Limited | Assigns Rating Watch

Rating Type Entity
(01-Aug-23 )
(10-Aug-22 )
Action Maintain Maintain
Long Term A+ A+
Short Term A1 A1
Outlook Stable Stable
Rating Watch Yes -

Ghandhara Tyre & Rubber Company Limited (formerly known as The General Tyre & Rubber Company of Pakistan Limited) is a prominent automotive tyre manufacturer in the country catering different market segments, including Original Equipment Manufacturers (OEMs), Replacement/After Market (RM), Institutions (Govt, Defense, etc.) and Export. The ratings reflect Company’s strong business profile and long-lasting presence in Pakistan’s tyre industry. The Company sustains its market share through product diversification in related niches. Tyre demand is primarily governed by replacement market followed by automobile OEMs. Intense competition from imported tyres and tyres smuggled through grey channels necessitates high quality products at affordable prices. Pertinently, non-production days of passenger car OEMs, fluctuating prices of raw materials, and slowdown in economic activity pose risk to profitability. Consequently, the Company registered negative topline growth of ~23.7% YoY basis owing to lower offtake by OEMs, particularly in passenger cars segment. However, the Company has increased its focus on export and registered positive growth of 33% for FY23. Profitability matrix for the review period was mainly influenced by exchange loss suffered due to rupee devaluation, supply issue of raw materials because of restrictions on opening of LC and high material costs, partially offset by better product mix and superior prices. The Company’s envisaged strategies are to hold strong foothold in its respective niche comprising 4-wheeler tyres for cars, LCVs, tractors, buses, trucks and OTR (off the road). To ensure business growth, management of the Company has always invested in modernization and capacity enhancement of plant. The Company is currently working on new sizes & designs for both OEM and RM segments. Going forward, the Company is expected to receive benefits from the entry of new OEMs in the market as it is already in close coordination with auto players to materialize supply of new tyres for SUVs. A well-devised governance framework, close association with major sponsors alongside experienced management team are considered positive for the ratings. Technical collaboration with Continental AG; Germany (one of the world’s leading tyre manufacturers) has supported the Company in developing expertise on technical front, which assures adherence to international quality standards.
The ratings are dependent on the Company’s ability to improve its business risk vis-à-vis financial risk profile along with sustainable margins. Cautious management strategies amidst challenging industry environment are pertinent. Moreover, prudent management of financial affairs remains important.

About the Entity
Ghandhara Tyre & Rubber Company Limited was incorporated in 1963 under the Companies Act, 1913 (now Companies Act, 2017) and got listed on the Karachi Stock Exchange in 1982. It is engaged in the manufacturing & marketing of a complete range of automotive radial tyres. At present, the Company operates with an annual production capacity of ~3.9mln tyres and ~4.4mln tubes. The Company is majorly owned by two sponsors - Bibojee Services (Pvt.) Limited and Pak Kuwait Investment Company Limited (PKIC), holding ~28% and ~30% shares, respectively. The CEO - Mr. Hussain Kuli Khan has an overall experience of ~26 years. An able management team assists him.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.