Tractor Industry to Boom par New Budget
KARACHI: The tractor industry of Pakistan is going to get another boost after the Sindh and Punjab governments – the two provinces with the strongest agriculture base – announced schemes in the recently announced budget for fiscal year 2015-16.
Last week, the Punjab government allocated Rs5 billion for the distribution of 25,000 tractors, while the Sindh government marked 29,089 tractors at a subsidy of Rs200,000 to Rs300,000 on each unit. This means a total of 54,089 tractors would be made available at subsidised rates.
“These tractor schemes will help sales and thus, its impact will be felt in downstream industries as well as in the output of the agriculture sector,” said an official of the Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam).
Prime beneficiaries of the development will be leading tractor manufacturers, Al-Ghazi and Millat tractors. The proposed schemes will provide a notable uplift of 118% in volumetric sales to the industry, said a BMA research report on Monday.
Considering the last tractor schemes as a proxy for the upcoming ones, sales of Al-Ghazi and Millat will rise by 20,500 units and 17,000 units, respectively. The lower impact on Millat is because the company has the maximum capacity to produce 45,000 tractors.
The tractor industry in Pakistan encompasses high localisation levels. As such, the companies serving as vendors to the tractor industry are also expected to benefit from the announced scheme where Bolan Castings, General Tyres and Baluchistan Wheels are the prime candidates to benefit from supplying parts, tyres and rims to tractor manufacturers.
Bolan Castings is part of the Millat Group supplying parts to Al-Ghazi and Millat while also manufacturing parts for truck assemblers Hino and others. Even though the company is currently operating at around 100% of its rated capacity, precedence of fiscal year 2010 and 2011 indicates that the company can operate at an utilisation level above 120%.
Moreover, the company utilises pig iron as its raw material for casting parts, the price of which has declined around 20% calendar year to-date. Thus, with increased volumes and margins, the company’s profitability outlook seems bright.
Both General Tyre and Baluchistan Wheels are partially related to the tractor industry supplying tyres and rims for the vehicles. Thus, the said companies will also likely to benefit from the development. However, it would not be on a very big scale.
General Tyre has an almost monopoly in supplying tractor tyres to both the Millat and Al-Ghazi, gaining the highest margins from the product while Baluchistan Wheels has a complete monopoly in the supply of rims for the tyres. General Tyres and Baluchistan Wheels derive 30% and 26% of their respective toplines from sales to the tractor industry. This development is also expected to add to the bottom-line of the companies.
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