KARACHI: Lucky Cement will invest up to Rs12 billion to set up an assembly plant for Kia vehicles, a stock notice said on Thursday.

Lucky Cement will invest by way of equity in the proposed associated company to manufacture, assemble, distribute and export all types of Kia vehicles, parts and accessories.

This is the second time that Kia, a South Korean company, will roll out vehicles in Pakistan. Its previous joint venture agreement was with Dewan Motors, which produced a limited number of vehicles following an unenthusiastic response from consumers.

Dewan Motors assembled Kia Classic NGV and Kia Spectra from 1999-2000 to 2004-05. According to the Pakistan Automotive Manufacturers Association (Pama), the production of Kia Classic in 2002-03 was 459 units, which plunged to 188 units in 2003-04. The following year (2004-05) was the last year of Kia Classic when 465 units were produced.

The company vows to invest up to Rs12bn in the auto entity

The production of Kia Spectra started with 890 units in Pakistan in 1999-2000 followed by 1,784 units in 2000-01, 2,091 units in 2001-02, 384 units in 2002-03 and 73 units in 2003-04. Only one unit was assembled in 2004-05, which was also the last year of its production.

In view of Kia’s bitter experience in the past, it is unclear how it will re-establish itself given the dominance of Japanese auto assemblers in Pakistan. Pak Suzuki Motor Company holds over 50 per cent market share in the country’s auto industry followed by 28pc share by Indus Motor Company (IMC).

The notice by Lucky Cement did not mention the amount that Kia is going to invest in the new company.

IMC Chief Operating Officer Ali Asghar Jamali said the economy improved 2012 onwards and the auto industry is now heading in the right direction because of the new auto policy, availability of financing and robust economic performance.

The auto industry remained flat until 2002, with demand averaging at 50,000 units per annum. It picked up pace after 2002 mainly due to a stable government, economic prosperity, availability of auto financing and introduction of the auto industry policy.

After achieving the production level of 250,000 units a year, a period of decline set in that was marred by political uncertainty, high inflation, unavailability of auto financing and economic downturn, he said.

“If the present optimism persists, we foresee the market touching 350,000 units by 2025. If new entrants step in, the demand may go up to 500,000 units,” he added.

An analyst at Topline Securities said Pakistan’s car penetration is 13 vehicles per thousand persons, which is significantly lower than the regional average of 162. He said strong potential for automobile growth exists due to a higher disposable income and low interest rate environment.

An Insight Securities analyst stated that the entry of Lucky Cement into the car segment will further diversify the company’s revenue line and strengthen profits considering robust auto demand in the future.

Due diligence

Lucky Cement is also going to initiate due diligence to evaluate the potential acquisition of the north plant of Dewan Cement located in Hattar, Haripur, Khyber Pakhtunkhwa, which has a production capacity of 1.134 million tonnes per annum.

According to the notice, the company along with its joint venture partner in Iraq also decided to increase its existing cement grinding capacity to 1.742m tonnes from 0.871m tonnes. This expansion will be financed by internally generated cash flows of the existing grinding unit, it said.

Published in Dawn, December 9th, 2016