KARACHI, July 15: The 10-rupee share in General Tyre and Rubber Company of Pakistan Limited is now trading at Rs57.20; at the beginning of the current year, it was priced at Rs30.35—the stock has gained Rs26.85 in just over six months, which translates into a capital gains of 88 per cent.

Probably among all the listed equities, only two other scrips did better than General Tyre: (D.G.Khan Cement 120 per cent and Nishat Mills 112 per cent). Overall, the KSE has gained 36 per cent since January, which means the three companies and few others visibly outperformed the stock index.

For the financial year 2002, General Tyre had disbursed cash dividend at 50 per cent tied to a stock bonus at 250 per cent (2.5 shares for each share held). That went to increase the number of outstanding shares from 17 million to 60 million, which also improved its liquidity. During the Jan-June six months of the current year, as many as 25 million shares in the company came up for trading.

The tyre market in Pakistan is around 3.5 to 4 million units. In the financial year 2002, General Tyre’s sales volume was 804,749 tyres, which represented 20-23 per cent of the market share. Since domestic competition was minimal, the remaining lion’s share of the market was understood to be wrested by imported tyres. In their third-quarter ended March 31, 2003 report, directors stated: “The company continued to look at ways of increasing capacity by investing in new equipment and improving efficiency to overcome increased competition against cheap imported tyres, particularly from China.”

But the company seems to be doing well, all the same. For the nine-months period ended March 31, 2003, General Tyre posted profit before tax at Rs220.4 million, which represented increase of 49 per cent over pre-tax profit amounting to Rs147.8 million earned in the corresponding period of the previous year.

Early last year, there had been some apprehension in the market on whether the company would or would not be able to renew the contract for the use of trade marks: “General”. But the blizzard has passed. A 7-year Technical Service Agreement was renewed between General Tyre and the Continental Tire North America Inc. (CTNA), USA, a subsidiary of Continental AG of Germany. The Agreement allows the company to continue using CTNA’s trade marks: “General”, “General Tire” and the big “G” logo as a licensee. As a consideration, General Tyre Pakistan is thought to pay royalty of 3 per cent on net sales to Continental AG.

Net sales in terms of value improved 20 per cent to Rs1,474 million for the nine months under review, from Rs1,224 million in the similar period of 2002. Directors noted that in volume terms sales had increased by 25 per cent to 653,076 tyres, from 523,926 tyres. The cost of sales as a percentage of net sales decreased marginally by 1.8 per cent due to savings in raw material costs resulting from favourable foreign currency exchange rates as well as savings made on utilities costs through increased efficiency. Expenses on selling and distribution increased 26 per cent to Rs77 million, due to aggressive marketing so as to increase company’s share of the replacement market. Financial charges decreased by 57 per cent to Rs8.9 million, from Rs20.6 million, owing to lower cost of borrowings.

Total assets of General Tyre stood at Rs1.6 billion at March 31, 2003, including operating assets valued at Rs372.7 million and capital work-in-progress at Rs27 million.

Tanvir Abid, head of research at Jahangir Siddiqui & Co. Ltd. commented that going forward the company’s earnings outlook appeared sanguine on the back of rising sales (fuelled by higher domestic demand) and contained manufacturing costs. The continuation of the robust trend of Original Equipment Manufacturers (OEM) sales—the largest of the three sales segments for General Tyre—during FY03 and consequent potential of a higher replacement market, would lead to strong demand. The analyst said that the hefty 250 per cent bonus had increased outstanding stock, diluting earnings, which was why historical higher dividend payment trend might not be repeated.