Five Dewan Group companies announce losses

[LahoreEstate]

Tuesday, March 03, 2009
By Saad Hasan

KARACHI: The thread-to-car conglomerate Dewan Group seems to be in dire financial straits as five of its companies on Monday posted losses for six months to December 2008.

Falling demand for the group’s premium products like cars and cement amid dismal economic situation of last year have battered its overall profitability and future outlook, analysts said. “Dewan has taken a lot of loans from banks. It is highly-leveraged and balance-sheet is very weak,” said Khurram Shahzad, analyst at Invest Cap Securities. “Payment ability of the group has reduced substantially over past few years.”

Dewan Faooque Motors, manufacturer and distributor of Hyundai and KIA in Pakistan, announced a staggering loss of Rs707 million for the first half of fiscal year that ends in June 2009, indicating the severe hit automotive industry has taken.

This loss, which is substantially high from Rs74m the company incurred in same period of previous year, is 97 percent of the net sales. Net sales plunged steeply to Rs727m from previous year’s Rs2.6 billion, in what is realization of fears of top industry executives that sales will slide along with economic and political turmoil.

Even now when Pakistan’s macro economic indicators have started to improve on back of falling commodity prices in international markets and IMF-monitored government move to cutback expenditures, analysts say the crisis is far from over.

“Rollback of car-financing schemes by banks following rise in interest rate have definitely discouraged demand,” Shahzad said. “However, car prices fuelled by rupee depreciation have gone up substantially and trend would have to reverse for demand to pick up.”

With inter-bank lending rate dropping to a little over 12 percent on Monday, he said, there are indications of a possible cut in central bank’s discount rate of 15pc. “But demand will depend on stability in exchange rate and inflation.”

Among the group’s other businesses, which were hammered during July-Dec 2008, Dewan Mushtaq Textile Mills announced a loss of Rs3.1m, down 20 percent from previous year’s Rs3.9m.

But prayers of the company’s Chairman Dewan Muhammad Yousuf Farooqui which he had passionately made in the two-paragraph directors report for first July-September quarter have not been answered as sales have gone down 35pc.

Financial losses have marred other textile companies of the group. Loss of Dewan Khalid Textile jumped 26pc to Rs42m from previous year’s Rs34m. Dewan Textile Mills is also in red with Rs200m in losses, up 150pc.

The result of Dewan Farooque Spinning Mills reflects more gloomy condition of the industry in the country as losses have increased over 300pc to Rs53m from Rs12m. Industrialists accept that this punishment is not without a good reason.

MA Jabbar, Chairman SITE Association of Industry, says poor performance of textile makers is repercussion of too much reliance on state’s support for too long.

“Textile industry was not prepared for unexpected changes in global economic situation and what happened at home,” he said, adding: “When government pulled back its hand, businesses just fell.”

http://www.thenews.com.pk/daily_detail.asp?id=165289