Sazgar Engineering Works, maker of CNG auto rickshaws, has decided to set up a car and light commercial vehicles’ (LCVs) plant on a fast-track basis as it looks to roll out models in an 18-month time frame to tap potential growth in Pakistan’s auto sector.
To achieve the target, the company has put on hold its earlier announced expansion plan for three-wheelers, stated a notification sent to the stock exchange on Wednesday.
“Considering the potential growth and future prospects of the automobile sector in the country and in order to facilitate timely completion of the project; the board has decided to hold the expansion of auto rickshaws production facilities as communicated earlier,” Company Secretary Arshad Mahmood said in the notification to the Pakistan Stock Exchange (PSX).
Sazgar’s share price increased 0.83%, or Rs1.58, to reach Rs191.19 on Wednesday with a volume of 320,700 shares changing hands. “The (cars and LCVs) project will be completed by June 30, 2019,” he said. The plant would have a “production capacity of 24,000 units per annum”, he said.
The board of directors has approved the estimated cost of the project of Rs1.76 billion. This is excluding the value of land already owned by the company. It is setting up the car plant in collaboration with a Chinese firm. The name of the foreign partner has been kept undisclosed since the beginning. They developed a formal understanding and signed a memorandum of understanding in this regard in May 2017. The two partners would manufacture, assemble, sell, and offer after-sale services of passenger and off-road (like jeeps) vehicles, it said.
“The company is already in the process of getting approvals from the regulatory authorities for the project,” he said. The company intends to set up a brand new car plant under the Greenfield Investment Category that has already been announced in the five-year Automotive Development Policy (ADP) 2016-21.
The new auto policy, announced in 2016, has attracted many new players to the automobile industry. Most of the new local companies have already announced big investment plans in collaboration with leading global automakers like Kia, Hyundai, etc.
In September 2016, Sazgar Engineering had announced an investment of Rs330 million to expand its rickshaw production capacity from 20,000 units to 30,000 units per year. But now it has shelved this particular investment plan.
Rickshaw expansion plan
The board of directors noted that the demand for rickshaws was also increasing in the country and to meet that it would increase production through expansion in working hours.
“The production of auto rickshaws will continue at the existing production facility of the company and the growing market demand of the auto rickshaws shall be met by increasing the production hours of these facilities,” Mahmood said.
The current production facilities are spread over five acres of land. Besides, it owns 27 acres of land located near Raiwind, Lahore.
The company had marked the available land for expansion of three-wheelers, which may now be utilised for the four-wheelers plant.
The company posted a net profit of Rs37.61 million (earnings per share of Rs2.09) in the quarter ended September 31, 2017, up 26% from Rs29.47 million (earnings per share of Rs1.64) in the same three-month period last year.
The demand for rickshaws and passenger cars is increasing due to a notable absence of a public transport system in major cities, increased disposable income with an expanding middle income group, cheaper car financing and launch of app-based cab services by Uber and Careem in the recent past.