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History Of The Millat Tractors Limited Economics Essay

This whole report starts with the brief introduction of the Millat Tractors Limited. The introduction consists of company background, products, objectives, mission and vision statement and dealer network. After this the report contain a complete financial analysis of the firm and its comparison with its main competitor i.e. Al-ghazi tractors, these ratios cover all the ratios which include the liquidity, leverage, profitability ratio, activity and other ratios. After this in the end the report contain the literature and article review from different authors and websites.

Contents

Company Review

Introduction

The millat tractors limited was established in 1964. At that time the main goal of this company was to introduce and market Massey Ferguson Tractors in Pakistan. In 1967, an assembly plant was set up to assemble tractors in semi-knocked down condition. In 1972 the company was nationalized and started assembling and marketing tractors on the behalf of Pakistan tractor Corporation (PTC), formed by the government of Pakistan to import the tractors in semi-knocked down condition. Later in 1980 the government decided to manufacture the tractor in Pakistan, so they put this responsibility on Pakistan Tractor Corporation (PTC). PTC transferred this role to Millat tractors in 1981. It took only one year for millat tractors limited (MTL) to manufacture their own tractors, by setting up the first engine assembly plant in Pakistan. In 1984, the MTL set up a manufacturing facilities for the machining of intricate components, which were not available in Pakistan. In 1992, MTL was privatized through management buyout (wikipedia).

Mission Statement

“Millat to be market leader in agricultural tractors and machinery, building Company’s image through innovation and competitiveness, grow by expanding market and investing into group companies, ensuring satisfaction to customers and stakeholders and to fulfil social obligations” (Millat Tractors).

Vision Statement

“Millat to be a global group of companies, recognized for a range of quality products with innovative design capabilities” (Millat Tractors).

Business Core Values

“Our customers are our first priority

Prosperity of our stakeholders

Corporate social responsibilities to enrich the lives of the community where we operate

Recognition and reward for the talented and high performing employees

Excellence

Integrity in dealing” (Millat Tractors).

Objectives and Strategic Planning

Objectives

“The main objective of the millat tractors in to be a market leader as far as market share and technology is concerned, in the areas of operations. The objective is also to continuously improve the efficiency and competitive strength and to offer the customer the quality products and support services at competitive prices and to their satisfaction. To generate sufficient earnings to ensure a secure future for the company and to protect and increase the shareholders return through continuously improving the performance. Moreover the objective is also to enhance the creativity and job satisfaction of the employees by providing opportunities for the personal development. To play a vital role for the society and environment” (Millat Tractors).

Strategic planning

“To make optimum use of ancillary industry in Pakistan to maximize indigenization of tract parts and farm equipment. To create in-house plant facilities for manufacture of components for tractors and other agricultural machinery which cannot be fabricated by the ancillary industry, where investments required are heavy or where technology involved is intricate. MTL will maintain a strong R&D Department to provide technical assistance to local manufactures and for product development. Ensure customer satisfaction by providing quality products at competitive prices with warranty coverage and ensuring after sales service” (Millat Tractors).

Products

MTL has a huge variety of products which includes tractors for the farmers that range from 50 HP to 85 HP, to fulfil the needs of the farmers for agriculture purpose. These tractors can be purchased not only against cash but also through bank financing. Besides Tractors MTL also offer industrial products like generators, that range from 15 KVA to 40 KVA, forklift trucks and prime movers, that range from 50 HP to 85 HP. MTL also deals in range of generating sets from 27 kVA to 2000 KVA (Millat Tractors).

Other than above mentioned products MTL also offers a wide range of agricultural implements like chisel, Disc and mould board plough, tine tillers, offset disc harrow, ridger, front blade, multi-purpose rear blade, agriculture loader, farm trailer, hydraulic tipping trailer, jib crane, post hole digger, lawn mover, and pneumatic pruning sets. MTL also provide a wide range of spare parts throughout the country (Millat Tractors).

Dealers

MTL has dealers throughout the country to make sure the availability of the tractors. MTL divided the whole country into six regions that are KPK, Northern Punjab, South Punjab, Upper Punjab, Lower Punjab and Balochistan (Millat Tractors).

Competitor Analysis

The main competitor of Millat Tractor is Al-ghazi tractors, besides Al-ghazi there are few private tractor manufacturers and Chinese tractors that multiply the competition. Below is the financial analysis of both millat tractors limited and Al-ghazi tractors. On the basis of these financial ratios we can compare the performance of both the firms. For Financial statements see the appendix. As far as the production and sales of MTL units are concerned a graph from their websites are given below.

http://millat.com.pk/wp-content/uploads/image/chart3.JPG

Source: http://millat.com.pk/?page_id=408

Financial Ratios

Liquidity Ratios

Current Ratio

Although the current ratio of both the firms are greater than 1, but the current ratio of Al-ghazi tractors is higher than 3 which shows that the company is inefficient to utilize its current assets to pay off the current liabilities. On the other hand the current ratio of MTL is greater than 1 but less than 3 which shows that company is efficiently utilizing its current assets to settle the current liabilities. So on the basis of the current ratio we can say that Millat tractor limited is working more efficiently with their assets as compare to Al-ghazi, which has huge current ratio that’s shows the inefficiency in case of utilizing the assets.

Quick Ratio

Quick Ratio shows the company’s ability to use the cash and cash equivalents to settle the current liabilities, this excludes the inventory. The ratio of both the companies shows that millat tractor is more efficient as compare to Al-ghazi. Moreover the ratio is also close to the current ratio which shows that inventory is well managed by the millat tractors. Although the ratio of Al-Ghazi is much higher than the millat tractors, but the ratio higher than 3 is not a good sign. This shows that Al-Ghazi tractors are unable to utilize the cash and cash equivalents to settle the current liabilities due which their ratio is higher than that of Millat tractors.

Inventory to net working capital

This ratio tells us the extent to which the working capital is tied up in the inventory, although it is less than 1 for both the firms. But in case of millat tractors it is higher than al-Ghazi which is not a good sign as it shows that lots of working capital is tied up in inventory as compare to that of Al-Ghazi Tractors. During the last year however the ratio has decreased in case of MTL and increased in case of Al-ghazi tractors but Al-Ghazi Ratio is still lower as compared to MTL. One of the main reason is the higher inventory since last three years of Millat tractors. One thing to be kept in mind is that these inventories mostly consist of spare parts and agriculture implements.

Profitability Ratios

Gross profit Margin

Although the gross profit margin of millat tractors are lower as compare to Al-ghazi tractors yet they are earning much on sale as compare to Al-Ghazi. In the year of 2011 Millat tractors report the sale revenue of 24863264 as compare to 14936034 but the reason is the high cost of goods sold. The main reason for the increase in the COGS is the components consumed, which is continuously increasing since last four years. According the millat tractors dealers and the website information the millat tractors is continuously increasing its production and achieved the target of 40000 tractors in the year of 2011, which obviously resulted in the increase in the components consumed. Besides components repair and maintenances and spare parts consumed also resulted in the increase of COGS, most of them were covered under the warranty claims. On the other hand in case of Al-ghazi tractors, Components consumed were highest in the year of 2010 and in 2011 the components consumed has decreased because of decrease in production, which also resulted in the decrease of other things like salaries, spare parts consumed and supplies. Due to this reason Millat tractors, that produced 40000 units as compare to Al-ghazi tractors that produces 19936 units in the year 2011, has to face lower gross profit margin as compare to the alghazi tractors. Otherwise as far as sales revenue is concerned, it is much much higher in case of MTL as compare to Al-Ghazi Tractors.

Operating Profit Margin

From the year 2008 till 2010, alghazi tractors has higher operating profit margin because of high sales as compare to COGS and low expenses but in the year 2011 Millat tractors beat the Al-ghazi tractors because of increase in production and sales and lower expenses with respect to the sales. Secondly the revenue from the sales against all the expenses are higher for MTL in the year 2011 as compare to the previous year. In the year 2011, alghazi tractors lower their production due to which their revenues also decreased. So the operating profit margin which indicates firms profitability from the current operations excluding interest and tax, is higher for MTL as compare to Al-ghazi tractors.

Net Profit Margin

Although the sales revenue of Millat Tractors are much higher than the alghazi tractors but they have to face high financing cost and taxation. In the year 2011 MTL also has to face a huge deferred taxation from the previous year’s along with the increase in the finance cost which is the result of increase in loans, accumulating compensated absences and trade and other payables. Trade and other payables were highest in the year of 2010 but decrease in 2011 due to which finance cost also showed some decreasing growth rate. On the other hand Alghazi tractors that produces much smaller number of tractors as compare to the millat tractors has to face low finance cost and taxation due to which the ratio is higher.

Return on Total Assets

This ratio calculates the company’s earning or profit against the total net assets, the higher the ratio the better it is as it shows that the company is earning more profits as compare to their assets. Initially MTL has to face lower ratio when compare to Al-ghazi because of high growth in net assets and lower growth of profit but in the 2011, when MTL achieved the record production of more than 40000 tractors the ratio increased much higher than Alghazi, which faced an increase in total assets with the decrease in net profits. In 2011, MTL has to face a decrease in total assets with the increase in net profit, which shows that the company efficiently used its assets to generate the profits. So it is not wrong to say that the MTL is much more profitable as compare to Al-Ghazi.

Earnings Per Share

This ratio shows the earnings available to the owners of the common stock and if you see the ratios then it is clear that MTL has a high earning per share which shows that the investors of MTL enjoying the higher profit against their investments as compare to that of Al-ghazi Tractors. So this also shows that MTL is highly profitable as compare to Al-ghazi Tractors.

Return on Stock Holder’s Equity

This shows the rate of return on the stock holder’s investment. The ratio clearly shows a huge difference between the two companies. In case of millat tractors, the after tax profits are increasing against the decreasing profits of Al-ghazi. This shows that investors are enjoying high profits against their investment in case of MTL as compare to that of Al-ghazi profit, which is facing decreasing after sales profits.

Leverage Ratios

Debt to Assets Ratio

High Debt to assets ratio shows that the company depends more on the debt financing, which ultimately increase the risk. Millat tractors shows increasing debt ratio until 2010 but it decreases in 2011. This shows that the company is more dependent on the debt financing rather than its own assets which made this company risky. Increasing EPS and stockholders’ equity also shows this as they are enjoying higher return which is the proof that the company is risky as higher the risk, higher will be the return. On the other hand Al-ghazi’s debt ratio is lower than the MTL, though they are also taking debt to finance their operation but the ratio against the total assets is low which shows that the company is less risk and depending mostly on its own assets as compare to that of MTL, this also results in the lower return. In the year 2011, MTL has dropped in liabilities significantly from the last two year but it also followed by the decrease in the total assets from the last two years. In this case we can say that Al-ghazi is better than the MTL.

Debt to Equity Ratio

Just like the Debt to asset ratio, Debt to equity ratio of MTL is also high which shows that MTL also depending on Debt financing more than the equity. This ratio suggest that MTL is depending more on the debt financing as compare to equity financing, this makes MTL more risky. On the other hand Al-ghazi tractors has the lower debt to equity ratio, which makes this company less riskier as they depend on the equity financing more than their debt financing as compare to the MTL. In 2011, the debt to asset ratio as well as debt to equity ratio both shows downward trend in case of MTL, which is because of the huge decrease in the total debt of the company which is almost equal to more that 40 million rupees, due to this there is the decrease in the ratio in the year 2011.

Long-term Debt to Equity Ratio

This ratio also show the financing condition of the firm. Higher ratio means that the company is more depending on the long term debt as compare to the equity. High ratio shows the high risk for the firm. In this case Al-ghazi has the higher ratio which shows that Al-ghazi is more dependent on the long term debt as compare to the equity. MTL dependent on the short term financing but in case of al-ghazi they are more dependent on the long term financing due to which their ratio is higher than MTL. This shows that as far as long term debt to equity ratio is concerned Al-ghazi is much riskier than the MTL.

Time interest Earned

This ratio is lower for the MTL as compare to al-ghazi. This shows that Al-ghazi is better in this case.

Activity Ratio

Inventory Turnover

Inventory turnover of MTL is much greater than Al-ghazi Tractors which shows that the company is efficient with the inventory and could be able to convert its inventory into sales. Though in the previous year that is from 2008 to 2010 MTL is behind Al-ghazi but in the year 2011, MTL is able to convert its inventory into sales more efficiently and effectively

Fixed Assets Turnover

Fixed assets turnover of Al-ghazi is decreasing since the last two year but on the other hand it is continuously increasing in case of MTL which shows that the company is more efficiently utilizes its fixed assets to make the sales. Other reason is that MTL non-current assets shows little or negative growth rate with the increasing sales but in case of Al-ghazi sales revenues are decreasing with the increasing fixed or non-current assets.

Total Asset turnover

Just like the fixed assets turnover ratio, total assets turnover ratio of MTL is also increasing which shows that the company is efficiently utilizing its assets to generate the sales as compare to that of Al-ghazi Tractors.

Other Ratios

Dividend Yield

Except the year 2011, in which MTL retained most of the earnings, in all the previous years MTL pays higher dividends as compare to the al-ghazi tractors whose dividend fluctuate through out the year. This shows that the investors of MTL received higher dividend as compare to Al-ghazi tractors.

Price Earnings Ratio

MTL PE ratio is increasing which shows that it is faster growing and less risky in the sense that they fulfil all the risky through the return. On the other hand Al-ghazi shows decreasing trend which shows that they are risky, except it is proved above that MTL is highly risky as compare to Al-ghazi but MTL cover the risk through the return as compare to Al-ghazi so it could not be wrong to say that MTL is faster growing and more profitable as compare to Alghazi tractors.

Dividend Payout Ratio

MTL Dividend payout ratio is increasing which shows that they are not retaining earning and paying more dividends in cash rather than retaining them. Other the other hand Al-ghazi is retaining more than MTL and not paying much dividend as cash.

Other Competitors

Other than these two public listed companies there is a private company with the name of Fecto Belarus Tractors which is basically a private Russian company and has been working since 1962. This company has also participated in many government schemes like Green tractor and Awami Tractor schemes. But this company is very small and not so much appreciated by the farmers. According to the information given on their website they have produced only 4000 tractors in the year 2010 and 2011 (Fecto Belarus).

Other than this there are few Chinese imported tractors but as per government rules there are very high barrier to the international tractors to support the local market. But if the Government could not able to address the problems the company is facing right now then these low price and low quality Chinese tractors will find their way into Pakistan, which will result in the major threat to the local industry.

Literature Review

Article

“Two main tractor manufacturing units Al-Ghazi Tractors and Millat Tractors have suspended their production after plummeting of their sales as levy of 16 percent GST has made the farm machinery costlier and Zarai Taraqiati Bank Limited has stopped tractor loans to the cash starved farmers for the past two years.

Millat Tractors Limited and Al-Ghazi Tractors Limited account for virtually all of industry's yearly output of more than 72,000 tractors.

A senior executive of Millat Tractors told Business Recorder here on Friday that tractor sales nosed down to 12,000 from July to December 2011 as against 30,000 tractors during corresponding period of last year. The industry sold 70,770 tractors from July 2010 to June 2011, he added.

He said tractor manufacturers have suspended procurement of parts from their vendors as there are already several thousand unsold tractors dumped at their plants and countrywide dealership network. Tractor prices surged by Rs100,000 to Rs. 200,000 a piece depending on engine horse power after imposition of 16 per cent GST in March last year plunging the industry in turmoil and endangering investment of billions of rupees, he added.

He said since ZTBL had suspended credit to farmers for purchase of tractors for two years and high interest rate of commercial banks' loans, tractors are being purchased only by those limited number of affluent growers who pay net cash. He lamented that prices of cotton have suddenly fallen to a new low, farmers are not getting payment of sugarcane produce in cash, on the contrary, prices of fertilisers and other agri-outputs have skyrocketed, therefore the cash deficit small farmers have no money to purchase tractors.

The executive suggested that the Punjab government should provide tractors to the unemployed people instead of taxis as a tractor is economically more useful and employment generator than a car/taxi Pakistan Association of Automotive Parts and Accessories Manufacturers Manufacturing held an emergent meeting here on Friday to review the socio-economic impact of tractor manufacturing units closure in the short and long run as they have stopped buying parts of tractors from the vendors spread all over the country.

Talking to this scribe PAAPAM chairman Nabeel Hashmi said that thousands of auto parts manufacturing units which provide 92 percent parts to the tractor industry are laying off their 0.5 million workers after closure of tractor manufacturing units.

He said imposition of 16 percent General Sales Tax has not only ruined the tractor manufacturing industry but has also had fatal repercussions on the agri economy and engineering and vending industry. Hashmi pointed out that due to decline in tractor sales, the government is not getting any additional revenue, therefore it should immediately withdraw this tax to make cost of tractors affordable for overwhelming majority of small farmers who own less then 12 acres land.PAAPAM chairman warned that as tractors are of prime importance to the agricultural sector itself, the agriculture and rural economy would grossly suffer with dangerous consequences if the government did not take immediate remedial measures” (Goraya, 2011).

Explanation

In this article Mr. Goraya told about the effects of general sales tax on the sales of the tractors. According to him the increase sales tax reduces the sales of the tractors in the country. Moreover the Zarai Tarakiyati bank was is responsible to give the loans to the farmers for the purchase of the tractors along with the other agricultural tools also stopped giving loans to the farmers due to which only those farmers who could afford the purchase of the tractors on the full cash basis could buy the tractors. This had the very adverse effects on the tractors industries as because of this the inventories which are unsold increased and many units goes unsold. Due to the increase in the taxes and the non availability of the loans the amount of the unsold tractors increased from 12000 units to 30000 units. Moreover because of the GST the prices of the tractors increases by 200000 rupees because of which farmers who were dependent on the loans, are now unable to purchase the tractors due to which the sales goes down, with the decrease in production. According to the sales person of millat tractors limited the production of millat tractors decreased from 40000 to 32000 units because of the last year unsold inventory. Moreover in the article it is suggested that except giving the yellow cabs schemes, government should provide tractors to increase the employment and to save the industry the government should reduce the taxes so that this automobile industry could move forward with any threat.

Article

“The last few years have been great if you were a tractor manufacturer. The industry has grown by a CAGR of more than nine per cent annually over the last five years – with the exception of FY08 when it registered negative growth. This is on the back of a supply deficit whereby the demand for tractors and agricultural implements (taken on a cumulative basis when we talk about tractors) has been racing despite the hullabaloo of structural weaknesses in economy. This is because the local tractor industry is a derivative of the agricultural sector which forms the backbone of our economy and is the leading source of employment for our labor force. Therefore, as the population grows, which it will regardless of the era in question; demand for agricultural produce will grow, resulting in continuous demand for tractors in Pakistan. The linkage between tractors and the agriculture sector is therefore clear for all to see. 

Previously, industry growth was thought to be relatively immune from decelerating trends in agriculture; a view which was given life by observing FY09 and FY10 when the industry grew 13 per cent and 14 per cent respectively despite downturn in the agronomy with in-turn depressed growth rates (four per cent and two per cent respectively). Any good analyst would surely decipher that this is not a concrete relationship as sooner or later any business/industry will be affected by the economic environment it operates within. And it now has. The imposition of 17 per cent sales tax in March 2011, coupled with declining agro product prices which dented farmer income, will start taking its toll on the industry and its participants. The recent notice sent to the KSE by one tractor manufacturer (Al-Ghazi tractors) substantiates this view: 

“Following the imposition of 17 per cent sales tax in March 2011 tractor bookings started falling… Impact of 16 per cent sales tax on tractors, announced in the Financial Bill of the year 2011-2012, continues to jeopardise the company’s sales. This has been spoiled further by the fall in cotton prices”

There are two main players in the tractor manufacturing industry, namely Millat Tractors Limited (MTL) and Al-Ghazi Tractors Limited (AGTL), which account for virtually all of industry output. Of these, MTL, with its popular brand Massey Ferguson, holds 61 per cent market share in terms of total tractor sales and has experienced significant growth in the turnover since FY07. The company has developed a track of breaking records by achieving an off-take of 30,244 in FY09 and then surpassing it in the subsequent year to 40,836 tractors. As per the official statistics released by the Pakistan Automobile Manufacturers Association (PAMA) the company has achieved sales of over 42,000 tractors in FY11 while the total tractor industry stood at 70,000 tractors sold during the year. Advanced bookings – a measure often used to gauge demand – increased by 81 per cent during FY10: 40,836 tractors pre-booked in FY09 to 74,000 tractors pre-booked during FY10. This figure is expected to drop as substantiated by the press release given above. Talking about the tractor industry as a whole, forming a holistic view of the key demand drivers of the tractor industry is imperative:

KEY INDUSTRY DEMAND DRIVERS

Government Incentives

The Benazir Tractor Scheme aims to incentivise the purchase of 20,000 tractors by subsidising the tractor up to 50 per cent. The program aims to provide a subsidy up to Rs200,000 per farmer leading to more affordable tractors. Given the tight fiscal position of the GoP further extension/incentivisation in this program is unlikely. Therefore, we view this program lacking in its true essence on account of an absence of both ability and willingness on behalf of the government to encourage farmer development.

Affordability

A 17 per cent tax levied on tractor production in the Finance Bill announced in March was initially projected to raise tractor prices by 10-15 per cent. However, after accounting for the cumulative impact of the imposition in tractor inputs as well, final tractor prices have gone up by 20 per cent. This is a serious jolt to farmers for whom tractors have gone beyond the reach of affordability.

Farmer Income

Agricultural prices had shot up in the recent past. However, they have witnessed a sharp decline inline with fall in commodity prices globally. Pakistan’s agricultural produce has been the same; as an example, cotton prices have fallen to the 5,500 mark after seeing highs of over 13,000 per maund. This has impacted farmer income and therefore, they are less willing to spend upon tractors as they simply cannot afford to.

Farmer Credit

Squeezing of loans by the Zarai Taraqiati Bank Limited (ZTBL), especially to farmers who own less than 12 acres of land, tractors are being purchased only by those who pay net cash. Given the fall in farmer income, the lack of credit in the market does not make a cash purchase viable for farmers. Indeed investment in such times is hardly the priority for farmers whose lifestyle limits him to focusing on only the necessities of life.

Tractor Life

According to FAO, ideal horsepower available per hectare should be 1.4, versus the current 0.9 in Pakistan. Increasing horse power utilisation would imply increasing the total number of tractors by more than 250,000 (55 per cent) highlighting the growth potential of the sector. Given the dearth in farmer awareness, a change in this trend seems unlikely.

Competition

High barriers to entry due to heavy capital outlay in establishing a distribution network reduce the threat of competition arising. Further, due to the high deletion levels (percentage of cost from locally manufactured inputs) soaring upto 90 per cent, Pakistani tractors trade at a significant discount to international counterparts, thereby making the import of tractors unfeasible and impractical.

Given the above demand outlooks, future prospects of tractor manufacturers surely seem weak. But why should this be as alarming as it sounds? Tractor manufacturers have had it good over the past few years operating at near 100 per cent utilisation levels. They have built their asset bases and have enjoyed periods of strong profitability. Given that the two manufacturers have not been forced to engage in a price war and that both operate at nearly zero leveraging, the reserves built-up should be substantial in sustaining them through a down period. However, tractors are of prime importance to the agricultural sector itself, and while some rationalisation can be expected, a total fall from grace would have a far reaching impact on the agronomy in the longer run in terms of efficiency and growth” (Khan).

Explanation

This article tells us that the tractor industry is the back bone for our economy. This industry was seeing the growth rate in the past but recently has to face many problems like GST, Inflation, expensive vendors. This articles also tell us that the MTL is the market leader with the 61 percent of market share as compare to its major competitor Al-ghazi, so it is in a strong position. This article also discussed different demand drivers. First of all the government support, although government is claiming to help the farmers by subsidizing the tractors through different schemes but still there is a lack of commitment and care of the government towards this industry. Secondly the affordability, with the increase in the GST, farmers are unable to afford such a expensive tractor, which was available for 15 lac two years back and now it is available for 20 lac rupees. Thirdly the farmer income, with the increase in population along with inflation it would be hard for the farmers to support their families and with the increase in the price of the tractors farmers could not buy the tractors as they also have to afford my other lives. Forth the loans, with the increase in bad debts and non performing loans the only bank for the farmers i.e. Zarai Tarakiyati bank stopped giving loans and increased their interest rates so farmers are unable to get the loans for the purchase of the tractors, this also multiply the difficulties for the farmers. Lastly the competition, as there are high barriers of entry to international firm to enter into the Pakistan market no international firm is eager to come into Pakistan due to which two firms MTL and AL-ghazi are the main players in the market with some local and private small manufacturers. This article also said that because of these conditions the future of this industry seems to be worse.

Article

“Millat Tractors Limited set a new record of highest ever production and sales by selling 42,000 tractors in the challenging year that ended on 30th June, 2011, improving by 4.5% than previous year’s sales of 40,140. The company also improved its market share from 56% to 60% which is the reflection of trust reposed by customers in Millat made tractors. To celebrate the occasion, the key of the 42,000th tractor was handed over to a farmer by Mr. Laeeq Uddin Ansari, CEO, MTL in a simple ceremony held in company premises.

Speaking on the occasion, Mr. Laeeq said that record sales and increased market share have been achieved in a year which was challenging. At the very onset of the year, the country faced unprecedented floods impacts and later the levy of 17% GST on inputs and tractors. He further informed that the Company will continue its efforts to produce quality tractors and offer new tractor models to the farmers of Pakistan suiting to their farming needs at affordable prices. He thanked all customers for reposing confidence in Millat produced Massey Ferguson tractors and congratulated the Company workers, employees, vendors and dealers for achieving this record” (Millat Tractors, 2011).

“It is a matter of immense pleasure for all the company employees that by the grace of Allah, despite all odds of the year 2011-12, the company has not only been able to achieve production and sales target of 32,000 units but also improved its share to 64% level.

At this occasion, an event was organized during which Mr. Sikandar Mustafa Khan, Chairman and Syed Muhammad Irfan Aqueel, CEO, handed over the keys of 32,000th tractor to a farmer.

Addressing to company employees, Mr. Sikandar Mustafa said that achieving the target of 32,000 tractors is indeed an accomplishment in current scenario. He appreciated the untiring efforts of management, executives, workers, dealers and vendors of the company.

Mr. S. M. Irfan Aqueel, CEO, MTL during his speech praised the hard work put in by the employees.

Mr. Maqsood ur Rehman, President CBA, in his speech assured that the workers would continue

their efforts and would also achieve the target set for the next year” (Millat Tractors, 2012).

Explanation

This article is the actually a composition of the two articles taken from the MTL official website. In the first half, which is a news from the beginning of the year 2011, in which it is told that the company has achieve the highest production of more than 40000 tractors despite the fact that the government has increased the taxes. If we look at the financial statements we can notice the increase in the inventories, this is because though they increase the production but because of increase in the GST the demand of the tractors had declined and farmers could not even get the loan from the banks to buy a new tractor. In the first half the CEO of the company said that they will continue to produce and manufacture more and innovative and advanced tractors for the farmers.

In the second half the article tells us that the production has declined from 40000 plus tractors to only 32000 tractors. This is main because of the GST which hinders the way for the farmers to buy the tractors as because of the GST, the prices of the tractors has gone up by 20000 rupees and farmers are unable to get the loan for the purchase of the tractors through cash.

Article

“The government is willing to impose 10% duty on tractor imports in order to protect Pakistan’s nascent tractor industry in upcoming budget 2012-13, say sources.

The introduction of tariff will boost local industry and can enhance the sales of locally manufactured tractors and scale down its prices. The core of government’s argument is that Pakistan’s infant industries do not have economies of scale that international competitors have, and thus need to be protected.

Currently, tractors can be imported duty free and federal treasury has been giving subsidy of Rs20,000  per tractor. The government has reduced general sales tax (GST) from 16% to 5% making it cheaper by Rs60,000 to Rs100,000 per unit. During the first nine months of fiscal year 2011-12 local tractor production declined to 27,131 units” (Tribune, 2012).

Explanation

This portion of paragraph is taken from the article on the tribune website. In this article, it is told that after the decline in the demand of tractors the government has decided to reduce the GST from 16% to 5% only but under a condition that the tax will be cumulative and will increase by 5% every year. This shows a major threat to the tractor industries as demand could be increased for the time being but it will start decreasing again after each passing year.

Articles

“A committee formed by the cabinet on Friday decided to reduce the GST on tractor industry from 16 percent to 5 percent so that the prices of tractors could be brought within the purchasing range of small landholders. The committee meeting was chaired by Minister for Industries and Defence Production Chaudhry Parvez Elahi and was attended by Minister for Kashmir Affairs and Gilgit-Baltistan Manzoor Wattoo, Minister for Religious Affairs Khursheed Shah, Industries Secretary Aziz Ahmad Bilour, FBR Chairman Salman Siddique and representatives of Zarai Taraqiati Bank Limited (ZTBL), tractor and Pakistan Association of Automotive Parts and Accessories Manufacturers.

Elahi said a reduction in the rate of GST on tractors was a win-win situation for all stakeholders and would help low-income farmers to adopt modern ways of farming. 

He said mechanisation of agriculture was the need of the hour and low-priced farm machinery would attract more and more farmers to upgrade their old and inefficient farming techniques. Representatives of tractor and its vendor industry met Elahi in Lahore on Thursday and the minister promised to resolve their issues. 

He also directed the representatives of the ZTBL to resume bank leasing of the tractors on easy installments to farmers to which they agreed. The meeting was informed that suspension of bank leasing on tractors was also one of the reasons of drop in sales of tractors. 

Elahi said the decrease in GST would cut the prices of tractors by rs 60,000 to Rs 90,000 which would boost sales and revenue for the Government. He said the economy of Pakistan heavily banked on the agricultural sector of the country “therefore every step will taken to modernise and mechanise it”” (Govt decides to reduce GST on tractor industry from 16% to 5%, 2012).

Explanation

In the this article it is told that government is ready to reduce the GST to make it easy for the farmers to purchase the tractors at low price and the minister of industry and defence also direct the banks to resume the loans and leasing of the tractors on the easy instalments so that the farmers could get the tractors on the easy terms. But the question remains the same that what would happen in the coming years as with each passing year the prices will again start to increase, the banks again start to face the bad loans with the increasing GST and inflations. If this trend continues then the major Chinese competitor will jump into the market with their low price tractors and our local firms will face the huge threat but unfortunately no one really cares about it right now.

Appendix

Financial Statements Of Millat Tractors 2011,2010,2009 from Annual reports


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