Unprecedented flood to hurt tractors sale

LAHORE - The worst-ever flood in the history of the country has almost devastated the basic infrastructure of the country and is still engulfing agricultural lands mostly in Punjab and Sindh. A severe jolt by this flood has also given a deathblow to the national economy. Along with this, the water still floating in cultivated areas will also hurt the tractor sales in second half of the fiscal year 2010.
Industry experts said that tractor sales would likely to decline by 25 per cent in the month of September. And this trend would keep on at least in the short run.
It is to be noted that to enhance agri activities government announced many incentives directly related to agriculture sector like removal of sales tax on tractors and Benazir Tractor Scheme. Both these measures provided impetus for additional tractor demand due to lower prices and accessibility to lower income persons. With all these initiatives, tractor sales have witnessed an increase of 11 per cent to 38k units in 1H2010. Among two listed tractor assemblers, highest volumetric growth was witnessed in Millat Tractors, up by 13 per cent followed by Al-Ghazi, which showed an increase of 9 per cent.
Hence, with higher volumetric sales and better margins, the cumulative earnings of both the companies stood higher by 27 per cent during 1H2010. Millat Tractor, which enjoyed 56 per cent market share, witnessed volumetric growth of 13 per cent during 1H2010. The company was able to sell 21k units compared to 18.4k units in same period last year. Hence net revenues for the company improved by 20% to Rs11.7bn compared to Rs9.8bn last year.
An industry expert Furqan Panjani while commenting the first year performance of the tractor manufacturing companies on the bourses said that along with volumetric growth, lower distribution expenses and higher other income provided strength to bottom line. Other income stood at Rs248mn, higher 82% compared to Rs136mn in same period last year. This is on the back of higher cash placed in high yielding deposits. Hence, bottom line stood at Rs1.2bn (EPS of Rs42.65) during 1H2010, up 40% from Rs892mn (EPS of Rs30.4) compared to same period last year. Despite 9% volumetric growth, some companies profit reduced by 2% to Rs8.4bn versus Rs8.6bn last year. However, gross margin of the company stood at 19% during 1H2010 versus 15% last year. Companys cost per tractor during this period stood at Rs403k versus Rs472k last year.