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Karachi: Agriauto Industries Limited has notified the Stock Exchange that the company intends to invest PKR 1.05 billion for establishing its fully owned subsidiary (100%) in the name of “Agriauto Stamping Company (Pvt) Limited” which would carry out the operations of stamping of sheet metal parts, sub-assembling and checking of fixtures/jigs manufacturing for the auto sector from July 2014.
According to Alfalah Securities Limited, Agriauto Industries itself produces parts and components of automotive vehicles, motorcycles and agricultural tractors whereas its major clients includes Indus Motors, Pak Suzuki Motors, Hino Pak Motors, Sindh Engineering, Dewan Farooq Motors Ltd, Adam Motors, Millat and Al-Ghazi Tractors Ltd and Dawood Yamaha.
The establishment of a stamping company would enable Agriauto Industries to diversify its business into the auto industry and would enable it to earn income apart from its core business operations.
The company operates mostly on cash generated through its business operations and has negligible debt in its books. Whereas, the company’s total reserves and cash and cash equivalent as at 1QFY12 amounts to PKR 2.113 billion and PKR 1.073 billion respectively, which is sufficient enough to finance the new subsidiary hence, Agriauto Industries does not require any external funding.
The company trades at a FY12E P/E of 4.38 times and offers an attractive dividend yield of 15.7%. However, the company has an average daily turnover of only 0.02 million shares and a free float of 28.8mn shares (55%). Alfalah Securities Limited believes, it is an attractive investment based on its financial performance however due to low shares turnover, the entry and exit would be difficult. Therefore, Alfalah Securities Limited recommends a BUY on this stock to investors intending to take smaller positions. BUY.