PACRA Maintains Entity Ratings of Ghandhara Tyre & Rubber Company Limited

Ghandhara Tyre & Rubber Company Limited is a prominent automotive tyre manufacturer in the country catering to different market segments, including Original Equipment Manufacturers (OEMs), Replacement/After Market (RM), Institutions (Govt, Defense, etc.) and Export. The ratings reflect the Company’s strong business profile and long-standing presence in Pakistan’s tyre industry. The Company is the sole manufacturer of PCR tyres in Pakistan and fulfils ~75% of the demand of OEMs besides offering a diverse product range in the PCR, LTB/R, TBB, Agri, OTR and 2-wheeler segments, enabling the company to sustain its market share by catering to the needs of a wide range of users.. During the past couple of years, Pakistan’s tyre industry faced operational challenges due to import restrictions. Moreover, the profitability matrix of the industry remained under pressure owing to increased production costs on the back of high energy prices and elevated interest rates. The OEMs’ sales have substantially declined owing to massive price increases due to PKR depreciation and decreased purchasing power of the consumers on the back of high inflation. However, the demand for tyres remains intact as the industry derives ~80% of its demand from the replacement market. During 9MFY24, the Company registered a topline growth of ~34.5% YoY owing to increased volumetric offtake in the replacement market augmented by price adjustments Profitability matrix of the company benefitted from the PKR stabilization during the review period and ease in imports leading to a marginal NP Margin of ~1.3% (FY23, -1.1%). The financial risk matrix is demonstrated by a stretched working capital cycle, modest coverages and leveraged capital structure. Going forward, the potential decrease in the discount rate is expected to support the Company in terms of lower financial charges. Moreover, it may also improve OEM sales due to lower auto financing rates. The Company’s envisaged strategies are to hold a strong foothold in its respective niche in the local market and focus on enhancing its export segment. To ensure business growth, the management of the Company has consistently invested in the modernization and capacity enhancement of the plant. Going forward, the Company is expected to benefit from the entry of new OEMs in the market as it has already started supplying SUV tyres to two Japanese OEMs. A well-devised governance framework and close association with major sponsors alongside an 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 the 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 a 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 and was listed on the PSX 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 ~4.3mln 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.