Baluchistan Wheels halts production

Baluchistan Wheels, a prominent manufacturer and marketer of automotive wheel rims catering to small cars, buses, and trucks, has announced a temporary cessation of production lasting for two weeks. This move comes as a direct response to a substantial decline in demand for their products from vehicle manufacturers.

According to a communication addressed to the Pakistan Stock Exchange (PSX), Muhammad Asad Saeed, the Company Secretary, explained that the company’s sales orders have dwindled due to a decrease in production volumes requested by their major clients, which are original equipment manufacturers (OEMs) or vehicle producers.

As a result of this situation, the management has made the decision to halt production temporarily, instituting non-production days from August 18 to 31, 2023. Production activities are scheduled to recommence on September 1, 2023, as conveyed by Saeed.

This marks the third occasion in the past eight months that the company has implemented a production pause. These measures have been taken in response to the slowdown in demand, which is linked to both a notable increase in automobile prices and a spike in interest rates for auto financing, rendering the products and vehicles less affordable.

According to the company’s financial report for the nine-month period concluding on March 31, 2023, Baluchistan Wheels reported a 41% decline in car wheel sales, amounting to Rs624 million, compared to Rs1.05 billion in the corresponding period of the previous year.

Furthermore, sales of truck and bus wheels experienced a 20% contraction, reaching Rs148 million as opposed to the previous year’s figure of Rs186 million. Sales of tractor wheels similarly decreased by 24%, falling to Rs523 million in comparison to the Rs693 million registered in the prior year.

The demand for automobiles, encompassing cars, trucks, tractors, and buses, plummeted significantly to just 7,761 units in July 2023. Muhammad Awais Ashraf, the Head of Research at Foundation Securities, stated that he anticipates demand stabilizing around the current levels in the upcoming months of the current fiscal year.

The decline in demand can be attributed to a series of factors. The fiscal year FY23 saw a severe reduction in demand for automobiles due to the government’s imposition of constraints on luxury imports. This was a response to the critically low foreign exchange reserves, sharp depreciation of the national currency (rupee), and an all-time high interest rate.

Although import restrictions were lifted in July, analysts predict that the demand for vehicles will remain subdued in FY24 due to ongoing economic sluggishness, considerable escalation in vehicle prices, and the continued surge in interest rates for auto financing.

The company’s financial report outlined a 35% reduction in net profit, amounting to Rs105.93 million for the nine-month period, in contrast to Rs163.08 million recorded in the same period of the preceding year.

The decline in both gross and net profits is largely attributed to the diminished demand across all segments of wheel products, a consequence of temporary shutdowns initiated by various auto sector assemblers.