Bolan Castings Limited (PSX: BCL) was incorporated in Pakistan as a public limited company in 1982. It is a subsidiary of Millat Tractors Limited. BCL is engaged in the manufacturing and sale of casting for tractors and automotive parts. Pattern of Shareholding As of June 30, 2024, BCL has a total of 11.473 million shares outstanding which are held by 1166 shareholders. Associated companies, undertakings and related parties have the majority stake of 46.66 percent in the company followed by local general public holding 38.58 percent shares. NIT & ICP account for 4.26 percent shares of BCL while insurance companies hold 2.61 percent shares of the company. Around 1.70 percent of BCL’s shares are held by its directors, CEO, their spouse Historical Performance (2019-24) BCL’s topline which was on the skids in 2019 and 2020, posted a strong rebound in 2021. The uphill trajectory of the company’s topline continued in 2022 followed by a decline in 2023. In 2024, the topline registered significant growth. BCL’s bottomline only posted a year-on-year growth in 2021 and 2024. In both the years, the company recovered from net loss posted in the previous years. The margins remained in the negative zone in 2019 and 2020, picked up in 2021 and then again tumbled in 2022. In 2023, gross and operating margins inched up while net margin plunged to negative zone. In 2024, BCL’s margins considerably strengthened. The detailed performance review of the period under consideration is given below. In 2019, BCL’s net revenue plunged by 34.19 percent year-on-year to clock in at Rs. 1513.64 million. This was because the tractor industry witnessed a decline during the year owing to low cotton crop which trimmed down the purchasing power of farmers. Upward revision in the tractor prices on account of Pak Rupee depreciation, high fuel and energy charges and high discount rate also kept the farmers at bay resulting in 37 percent decline in sales volume of BCL (see the graph of sales volume). Cost of sales slid by 15.64 percent year-on-year, resulting in gross loss of Rs.149.78 million in 2019 versus gross profit of Rs.328.20 million posted in 2018. Distribution cost plunged by 15.77 percent year-on-year due to lower freight charges. Administrative expense surged by 7.98 percent year-on-year due to market induced rise in salaries and wages. Other income grew by 39.98 percent year-on-year in 2019 due to scrap sales, higher return on deposit and saving accounts recognized during the year and also because BCL wrote back the liabilities which were no longer payable. Despite sizeable growth, other income was not significant enough to produce any positive impact on the operating results of BCL. BCL posted operating loss of Rs.258.86 million in 2019 as against the operating profit of Rs.196.95 million registered in 2018. Finance cost multiplied by 309.83 percent year-on-year in 2019. While high discount rate played its due role in driving up the finance cost in 2019, BCL also tremendously increased its short-term borrowings during the year to meet working capital requirements. This resulted in gearing ratio climbing up from 24.52 percent in 2018 to 60.91 percent in 2019. The result was net loss of Rs.239 million in 2019 with loss per share of Rs.20.83 versus net profit of Rs.133.40 million and EPS of Rs.11.63 recorded in 2018. 2020 proved to another sluggish year for BCL where its topline plummeted by another 11.96 percent year-on-year to clock in at Rs.1,332.57 million. While locust attack and water shortage in Sindh and Punjab region already took its toll on the agricultural output and pushed down the tractor sales, the outbreak of COVID-19 made things even worse. BCL registered 25 percent drop in its sales volume in 2020. High fuel and power charges as well as elevated raw material charges due to depreciation of Pak Rupee didn’t let BCL post any gross profit in 2020 too. Gross loss; however, slumped by 41.16 percent year-on-year in 2020 to clock in at Rs. 88.13 million. Low payroll expenses and freight charges pushed both administrative and distribution expense down by 14.51 percent and 22.65 percent respectively in 2020. Other income also inched down by 37.95 percent year-on-year in 2020 owing to lesser scrap sales made during the year. Operating loss shrank by 29.97 percent year-on-year in 2020 to clock in at Rs.181.29 million. Finance cost didn’t give any respite and magnified by 52.82 percent year-on-year in 2020 as the company obtained long-term financing under SBP Refinance Scheme for the payment of salaries and wages. BCL’s gearing ratio rose to 84.41 percent in 2020. Moreover, discount rate was also high for the major part of the year except for the COVID quarter. High finance cost blew up the gross loss by 13.68 percent year-on-year in 2020 to clock in at Rs.271.69 million with loss per share of Rs.23.68. In 2021, BCL posted a robust 81.51 percent year-on-year growth in its topline after two gloomy years of lackluster sales and negative bottomline. Net sales were recorded at Rs. 2418.80 million in 2021. During the year, sales volume grew by 42 percent year-on-year to clock in at 9,779 MT. Good agricultural yield culminated into stronger demand for tractors which also stimulated growth in the ancillary industries. Cost of sales also grew by 48.91 percent year-on-year in 2021, however, increased volumes as well as prices enabled BCL to post gross profit of Rs.303.30 million with GP margin of 12.54 percent. Higher freight charges drove distribution expense up by 49.65 percent year-on-year in 2021 while administrative expense surged by 43.45 percent year-on-year on account of higher legal and professional charges and provision for impairment booked during the year. BCL had not incurred other expense during 2019 and 2020, however, it booked other expense worth Rs.13.25 million in 2021 classified as WWF and WPPF. Other income multiplied by 717.26 percent in 2021 due to gain recognized on the curtailment and settlement of funded pension scheme, government grant income as well as greater scrap sales during the year. Despite higher expense, BCL posted operating profit of Rs.223.92 million in 2021 with OP margin of 9.26 percent. Finance cost contracted by 32.57 percent year-on-year in 2021 due to discount rate cuts during the year. BCL’s gearing ratio also marched down to 66.21 percent in 2021. BCL posted a positive bottomline of Rs.132.38 million in 2021 with NP margin of 5.47 percent. EPS clocked in at Rs.11.54 in 2021. BCL was able to muster 13.70 percent year-on-year topline growth in 2022. Topline clocked in at Rs.2750.18 million in 2022. However, a sneak into the numbers show that the growth came on the heels of upward price revisions while the sales volume tumbled by 10 percent to clock in at 8788 MT of castings in 2022. Cost of sales surged by 19.83 percent year-on-year on the back of Russia-Ukraine crisis which created supply chain impediments and resulted in higher prices of oil and other commodities. This coupled with Pak Rupee depreciation and import restrictions due to low foreign exchange reserves proved to be a double whammy for BCL as its gross profit, once again, dwindled by 29 percent year-on-year with GP margin sliding down to 7.83 percent in 2022. BCL kept a check on its distribution and administrative expense which inched down by 1.27 percent and 20.74 percent respectively owing to lesser freight charges, payroll expense, legal and professional charges and no impairment for provision booked during the year. Other expense shrank by 68.60 percent year-on-year in 2022 due to lesser provisioning done for WWF and WPPF. The gain recorded on the curtailment and settlement of pension scheme which was booked last year wasn’t available in 2022, culminating into 69.21 percent fall in other income in 2022. Operating profit slumped by 52.47 percent year-on-year in 2022 with OP margin falling to 3.87 percent. Finance cost nosedived by 2.10 percent year-on-year in 2022 despite monetary tightening. This was because the company made massive loan settlements during the year to trim down its loan book. This resulted in a further downtick in BCL’s gearing ratio which was recorded at 65.08 percent in 2022. Net profit plummeted by 88.43 percent year-on-year in 2022 to clock in at Rs.15.32 million with NP margin of 0.56 percent. EPS climbed down to Rs.1.34 in 2022. In 2023, BCL’s topline slid by 21.28 percent year-on-year to clock in at Rs.2164.91 million. This was the effect of 43 percent year-on-year reduction in the sales volume which stood at 5028 MT in 2023. Devastating floods at the onset of the fiscal year resulted in damage of infrastructure network particularly in the province of Baluchistan. This coupled with the economic and political crisis prevailing in the country halted the purchase of tractors and automobiles. Cost of sales slipped by 22.76 percent year-on-year in 2023 as the company had to shut down its plant on account of sluggish demand. Gross profit tumbled by 3.84 percent in 2023, however, GP margin improved to clock in at 9.56 percent. Enhancement in GP margin was achieved through operational efficiency and use of local low-cost raw materials in the face of import restrictions. Distribution expense shrank by 7 percent in 2023 on the back of reduced volumes which resulted in lower freight charges. Curtailed legal & professional charges resulted in 16.11 percent lower administrative expense incurred during the year. Other expense nosedived by 46 percent in 2023 due to lower provisioning done for WWF and WPPF. Other income also shrank by 36.12 percent in 2023 primarily due to lower scrap sales and government grant income. Operating profit grew by a paltry 0.17 percent in 2023 with OP margin climbing up to 4.92 percent. Finance cost surged by 53 percent in 2023 on the back of high discount rate. This was despite the fact that BCL squeezed its loan book during the year which drove down its gearing ratio to 61.95 percent. BCL posted net loss of Rs.24.72 million in 2023 with loss per share of Rs.2.16. Significant growth in the agriculture sector resulted in a rebound in tractor sales in 2024. This resulted in 56.60 percent year-on-year growth in BCL’s topline which clocked in at Rs.3,390.18 million in 2024. Robust topline growth not only came on the heels of improved volumes but also due to upward price revision to incorporate high cost of sales. During the year, there was 54.72 percent growth in tractor production in the country which directly benefitted BCL. The company also switched to local raw materials to evade the effect of currency depreciation and supply chain impediments. BCL’s gross profit strengthened by 180.38 percent in 2024 with GP margin rising up to its optimum level of 17.12. Distribution and administrative expenses multiplied by 59.20 percent and 71.42 percent respectively in 2024 due to increased sales volume, elevated capacity utilization and also because of high inflation. The main contributors of higher operating expense in 2024 were payroll expense, freight charges, utility expense as well as legal & professional charges. BCL streamlined its workforce from 138 employees in 2023 to 133 employees in 2024. Other expense mounted by 976.82 percent in 2024 to clock in at Rs.24.15 million. This particularly comprised of provisioning done for WWF and WPPF. Other income also grew by 15.13 percent in 2024 and greatly offset other expense. Higher return on bank deposits and robust dividend income were the main drivers of other income in 2024. BCL’s operating profit improved by 261.11 percent in 2024 with unsurpassed OP margin of 11.36 percent. BCL was able to cut down its finance cost by 17 percent in 2024 by paying off its outstanding dues. This considerably squeezed the gearing ratio to 34.60 percent in 2024. BCL posted net profit of Rs.118.67 million in 2024 with EPS of Rs.10.34 and NP margin of 3.50 percent. Recent Performance (1HFY25) During the first half of the ongoing fiscal year, BCL posted 48.43 percent year-on-year slide in its topline which clocked in at Rs.854.98 million. This was the result of depressed sales and production volumes recorded during the period owing to lackluster demand. During 1HFY25, the company produced 1881 MT of castings, down 47 percent year-on-year. Gross profit tapered off by 82 percent in 1HFY25 with GP margin falling down to 6.32 percent from GP margin of 18.16 percent recorded in 1HFY24. This was because of increased cost of raw materials as well as elevated energy tariff. The sluggish demand in the industry didn’t allow BCL to pass on the onus of cost hike to its customers. Lower sales volume translated into 38.61 percent plunge in distribution expense in 1HFY25. Administrative expense also tapered off by 14.78 percent in 1HFY25 apparently due to lower payroll expense. BCL didn’t book any profit related provisioning during the period. Its other income also eroded by 22.72 percent in 1HFY25 apparently due to lower income from financial assets owing to lower discount rate. BCL recorded operating loss of Rs.3.13 million in 1HFY25 versus operating profit of Rs.210.96 million recorded in 1HFY24. Monetary easing as well as lower outstanding liabilities resulted in 41.43 percent lower finance cost in 1HFY25. The company registered net loss of Rs.35.419 million in 1HFY25 with loss per share of Rs.3.09 as against net profit of Rs.115.79 million and EPS of Rs.10.09 posted in 1HFY24. Future Outlook As economic activity is gradually improving with inflation and discount rate trending downward, the demand of tractors is expected to improve. Initiatives like Green Tractor Scheme will also provide boost to the tractor industry besides benefitting the allied industries and promoting mechanized farming.