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EXECUTIVE SUMMARY
Automobile industry is concerned with transporting vehicles,
which include passenger class, trucks and computers. Following
are the key players in automobile industry in Pakistan Toyota,
Suzuki, Honda, Nissan, and Dewan Farooque Motors, in start the
main players in this industry are Toyota, Honda and Suzuki and
among these now Dewan Farooque Motors (DFML) also capture a
great part of market share in car industry of Pakistan. DFML is
producing the products of two famous Korean companies KIA
MOTORS and HYUNDAI MOTORS of Korea. It is producing 6
products like Hyundai shehzore truck, which is a pickup for
carrying the luggage; another products of Hyundai are 1000cc car
named santro club and grace van for office use. The products of Kia
motors are 1300cc car Kia classic 1500 cc car Kia spectra and
2000cc turbo diesel jeep. DFML is a joint venture between the
Dewan Mushtaq group of Pakistan Hyundai motors limited Korea
and Kia motors Korea.
The company was incorporated on December 17, 1998. It is
situated at Dewan city Sajawal 152 kms away from Karachi. Its
annual capacity is 20,000 units per year, expendable to 40,000
units per year. Its estimated project cost including total fixed cost,
is Rs. 144,340,000.
Appreciation of Korean van or devaluation of Pak Rupee
increase the cost of imported material, which include CKD kits,
that account for 75% of the total cost. Tax policies of the
government also affect the company. Presently the CVT rate is
6.25% and upon that, they have to pay 40%, which causes an
increase in the cost of the vehicles.

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In political and legal forces, poor law and order situation,


especially in Karachi, also affect the country. Political instability in
the country and the government’s inconsistent policies, for
example, taxi scheme from Nawaz Sharif Government, also produce
effect on the auto industry in Pakistan. The result of the Taxi
scheme is that, 3000 taxis are still present in the market, awaiting
sale.
Industry Specific Deletion Target means numbers of parts
and spares will be manufactured locally through vendors. Industry
Specific Deletion Target specifies that “No Roll Back”. This policy
discourages the new entrants because the new entrants will have to
start at the deletion level that already exists in the industry.

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Dewan Mushtaq group

Dewan Mushtaq Group has an annual turnover


exceeding Pak Rupees 30 billion. The main fields of
business include textiles, sugar, polyester and acrylic
staple fiber, assembly-cum-progressive manufacture of
automobiles and equity participation in a private bank.
Other allied businesses include a polypropylene sacks
making and particle board manufacturing plants as
downstream industries of sugar industry and
automotive parts manufacturing as backward
integration of its automobile industry.

All group companies are highly reputed for paying their


shareholders handsome dividends regularly, and in
fulfilling their financial obligations and commitments on
time.

The history of Dewan Mushtaq Group goes way back to


the year 1916 to the State of Patiyala in the Punjab
Province of India when a small cottage industry was set
up by Dewan Mohammad and his son Dewan Mushtaq
Ahmed to manufacture garments. During 1918, another
establishment was started in Karachi to import clothing
and other multifarious commodities, which were then
sold all over India.

In 1947, the Dewan family migrated to Pakistan. They


settled in Karachi, formed Dewan Mushtaq Sons, and

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started trading in commodities like tea, sugar, second-


hand clothing, garments and fabrics. Due to hard work
and honest dealings of the family, the business rose to
new heights and by late fifties, the turnover of the firm
was as significant as Rs. 60 million per annum.

The Group presently employs over 12,000 persons at its


various plants and offices.

More information about DMG: -


Dewan Far Eastern Co. Ltd.
Business Intelligence Unit
Dewan Executive Development Center
IT Department
Social & Community Welfare

Dewan Far Eastern Co. Ltd.

Dewan Far Eastern is the overseas sales office and responsible for
obtaining export orders for cotton yarn, produced by DMG Textile
Division. Mr. Taro Ishikawa looks after this office

Business Intelligence Unit

Business Intelligence Unit functions as the market research and


intelligence cell of DMG. Though its principal responsibility is to
collect and analyze the data about Fiber Industry, its key players
including its users, namely fabric producers, it also carries out
specialized market studies in other fields namely, textiles,
automobiles, sugar etc, and it also performs financial analyses

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Dewan Executive Development Center

Dewan Executive Development Center was established in June


2000. It was formally inaugurated on July 28, 2000 by Mr. Dewan
Mohammad Yousuf Farooqui and was followed by a seminar on the
Seven Habits of Highly Effective People, based on Steven Covey's
bestseller.

Human Resource Development

The group is determined to establish a platform where it can


provide the knowledge and skills to its employees so that they will
be the torch-bearers of the organization tomorrow. DEDC is an in-
house management development organization for excellence in
training. It has been established with the explicit purpose of
ensuring organizational growth and development and to serve the
need for wisdom in corporate decision-making, thus playing an
important role in the long-term success of Dewan Mushtaq Group.

Training & Development Programme.


Our training and development programme is an in-house
programme that is designed to change the way we work and think.
Our faculty is a blend of individuals from diverse backgrounds
comprising of scholars and educationists of the corporate world.

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Our Mission

"To provide a forum for exchange of ideas and knowledge with


thorough training and development of individuals in the field of
business so that they are well equipped to face the dynamic global
environment."

Human Resource Development

The group is determined to establish a platform where it can


provide the knowledge and skills to its employees so that they will
be the torchbearers of the organization tomorrow. DEDC is an in-
house management development organization for excellence in
training. It has been established with the explicit purpose of
ensuring organizational growth and development and to serve the
need for wisdom in corporate decision-making, thus playing an
important role in the long-term success of Dewan Mushtaq Group.

Training &Development programme

Our training and development programme is an in-house


programme that is designed to change the way we work and think.
Our faculty is a blend of individuals from diverse backgrounds
comprising of scholars and educationists of the corporate world.

Our Objectives

• To spark new and innovative ideas in the individuals so that


they are competitive enough to face the global economic and
market environment.

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• To equip DMG individuals with a thorough understanding of


managerial and technological skills in a manner that has a
profound effect on their personality and character.
• To build leadership qualities in individuals so that they can
make use of it efficiently and effectively in order to make every
unit productive.
• To help to bring about a paradigm shift by creating a dynamic
and positive learning environment and changing our
corporate culture.
• To help DMG to cope with knowledge-based economy.
• To provide DMG staff with basic conceptual training and
impart latest managerial concepts / skills, so as to make
them "knowledge workers" and on-line to deal with the
challenges of modern business.
• The core of DEDC training programme is that the concepts
and training that are imparted should be thoroughly applied
and further growth and development of an individual should
be related through training and development.

Our Assurance

We believe that DMG members are our most precious resource, our
human capital. We also believe 'human progress' to be the
worthiest of goals through recruiting, developing, motivating,
rewarding and retaining personnel of exceptional competence and
providing them with a healthy working environment, competitive
compensation, excellent opportunities for growth and a high degree
of job security.

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Our Commitment

We are committed to surpass competition by unleashing the


constructive creative abilities and energies of our group's
employees.

Seminars / Training Courses Conducted

• The Seven Habits of Highly Effective People


• Star Office Training
• Communication Concepts and Skills, Level-I
• Communication Concepts and Skills, Level-II
• Seminar on Business Ethics
• Finance for Non-Finance Executives
• Presentation Skills
• Office Etiquettes and Mannerism
• 5S-Housekeeping

Future Programmes

• Teamwork
• Time Management

1. Effective Meetings Basic Supervision Skills (Urdu) Industrial


environment.

• Safety, Firefighting & First Aid


• Motivation & Leadership
• Knowledge Management

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• Emotional Intelligence
• Negotiation Skills
• Change Management
• Conflict Management
• Skills in Selling
• Customer Service
• ISO 9001

IT Department

The Group, fully recognizing and realizing the importance of


information technology in today's business and industry,
established the IT Department in March 1999. The work on
software development started with complete computerization at
Dewan Sugar Mills with fully built-in automated system and
simultaneous computerization of Dewan Farooque Motors Ltd.'s
operations. The successful completion of both the projects gave an
impetus to modernization of management process at DMG.

Currently, IT Department is working on plans for introducing


technological advancement like ERP Development, Intranet and
Extranet Solutions, On-line reporting systems etc.

IT Department of DMG is equipped with the most modern and


highly advanced technological facilities in terms of hardware,
software, data-transfer facilities.

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Vision Statement of IT Department

I.T Department is dedicated to provide reliable information base


using most modern technology to potential users at all levels. Our
professionals individually and collectively, will constantly improve
their competitive skills and excel in providing quality service
covering all the aspects of the technology.

By embarking into the digital age we will accelerate the positive


effects and mitigate the challenges as knowledge grows when
shared.

We will innovate in a research-oriented manner with


technologies to create our own future and value added activities
for profitable relationships with our stakeholders, thus
encouraging intellectual curiosity for our products, service and
insight that will help people around the world, shape the ways
business and education will be done in future. Our professionals
and their competitive skills will be the hallmark, that combined
with technology innovation, expert skills and teamwork, will
keep us leaders in "CHANGE" to open new doors.

Social & Community Welfare

The Group is fully committed to the vision and principles laid down
by its founding fathers. In keeping with its corporate philosophy
and the spirit of social service and human respect, it strives to
fulfill its corporate social responsibility. As an exemplary corporate
citizen, the Group has set high standards in the area of public

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service and community welfare through a variety of philanthropic


contributions.

Industrial Background

In 1968, the Dewan Family, under the leadership of


Dewan Mohammad Umer Farooqui, ably supported by
his younger brother, Dewan Salman Farooqui, decided
to enter the industrial arena.

The first industrial unit was set up in 1970 under the


name and style of Dewan Textile Mills Limited with a
capacity of 25,080 spindles which has since been
increased to 61,704 spindles. The Group strengthened
its footing in the textile field by taking over another
textile unit in 1975, now known as Dewan Mushtaq
Textile Mills Limited with an installed capacity of 25,776
spindles. Thereafter, the Group established another
spinning unit Dewan Khalid Textile Mills limited,
consisting of 26,624 spindles.

By mid of 1980's, the Group with its characteristics of


honesty, integrity and determination, became one of the
major textile groups in the country. At this stage, the
Group decided to diversify its activities to other spheres
and entered the sugar industry. In 1987, the Group
established Dewan Sugar Mills Limited with a sugar
cane crushing capacity of 3,500 metric tons/day which
has been gradually expanded to 9,000 metric tons/day,

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thus making it one of the largest sugar plants of the


country. The Mills obtained ISO Certification in 1998.

The Group further diversified its range of business by


setting up capital-intensive polyester staple fiber plant
under the name and style of Dewan Salman Fiber
Limited. The Group's credibility is evident from the fact
that Dewan Group was able to obtain the collaboration
with the world's giant conglomerates like Mitsubishi
Corporation of Japan and Sam Yang Company Limited,
Republic of Korea and set up the state-of-the-art plant
in 1990.

The Company signed an agreement with Messrs


Noyvallesina Engineering, an Italian company, for
establishing an Acrylic Fiber and Tow Plant as part of
its expansion plan. The Acrylic Plant with an installed
total capacity of 55,000 tons per annum commenced
commercial production operations from 1st July 2000.
In the first phase, the Acrylic Plant is producing 25,000
tons acrylic fiber. In phase II, the output will be raised
by 30,000 tons.

The Group manifested its decision to diversify into


automobile industry of Pakistan through the
incorporation of Dewan Farooque Motors Limited on
December 1998. Within this month, two more
milestones were reached: the signing of Technical
License and Exclusive Distributor agreements with

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Hyundai Motor Company, Korea's No. 1 and world's


seventh largest automobile manufacturer.

1999 marked another important year in the history of


the Group when Dewan Farooque Motors signed the
Technical Collaboration Agreement with Kia Motors
Corporation of South Korea, in July 1999.

Dewan Farooque Motors is now a key player in the


automobile industry of the country offering an
impressive line up of passenger cars and commercial
vehicles. Its state-of-the-art plant has a capacity of
10,000 vehicles per annum on single shift basis and is
equipped with the latest facilities, which include CED
paint system and robots for the final coat.

June, 2000, marked another important milestone in the


history of the Group when its flagship company Dewan
Salman Fiber Limited, acquired Dhan Fiber Limited and
fully merged and incorporated its facilities into its
operations .The total output of Dewan Salman Fiber
Limited’s 3 polyester units is 700 tons per day. The
company today enjoys a market leader's position and
commands market share of 60% in the country's fiber
industry.

Group of Companies

Dewan Mushtaq Group is one of the most highly


respected and reputed industrial groups in Pakistan,

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enjoying the confidence of the general public, local and


foreign capital markets, financial institutions and the
Government.

The Group is amongst the top ranking business houses


of the country with an annual turnover exceeding Pak
Rupees 30 billion. The main fields of business cover
textiles, sugar, automobiles, polyester staple fiber and
equity participation in a private bank.

Further, all the Group companies are well reputed for


paying their shareholders handsome dividends regularly
and in fulfilling their financial obligations and
commitments on time.

The Group comprises of the following companies that


are listed on stock exchanges in Pakistan:

One of the largest polyester staple fiber manufacturing


company of Pakistan

• Dewan Salman Fiber Limited

One of the largest sugar manufacturing company of


Pakistan

• Dewan Sugar Mills Limited

Three textile companies namely;

• Dewan Textile Mills Limited


• Dewan Khalid Textile Mills Limited

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• Dewan Mushtaq Textile Mills Limited

Automobile Manufacturing

Dewan Farooque Motors Ltd.

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Dewan Farooque Motors Limited

The Automobile industry has provided direct and indirect


employments to thousands and pumped in billions of investments
and contributed billions more in taxes and duties to the National
economy. It has also saved billions in import substitution laying
down foundation for many down-stream related industries. For the
time being the local auto industry enjoys the protection against
imports as imports are discouraged by heavy import duty. While
the protection has benefited both the Government and the
producers-the former in substantial revenue and latter in
profitability-it has come at the cost of buyers whose concerns just
don't seem to matter with the policy makers.

Leasing Companies and financial institutions have played a pivotal


role to push the auto sales during last couple of years and are
expected to play this role in the years to come. Although the mark
rates have of late seen aggressive slashing and come down to single
digit figures, the mark-up rates on auto financing still remains
much to high shying away many potential buyers as compound
interest in majority of the leasing options add up to over 30 percent
depending on the payment period.

Thanks to the increasing internal competition resulting in the


introduction of new models in recent months, and with many more
such plans in the offing, the Pakistani automobile industry is in
transition. Car buyers today enjoy a better choice brands and
models as well as leasing options. Over the years, the auto prices
have registered increases far above the rising rupee-dollar parity

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which took a turn for reverse in the middle of last year as the dollar
kept shedding its value and now trades at around Rs.57 compared
to Rs.67 then. None of the assemblers, who never miss an
opportunity to immediately increase the prices of their products at
the slightest depreciation of the rupee, have seen it fit to reduce the
prices despite the substantial reduction in the value of dollar. The
only thing that has happened is that the prices of vehicles have
gone up.

The survival of the local industry which employs over 125,000


persons directly or indirectly and contributes a substantial revenue
amounting to Rs.7 billion annually, excluding Rs.3 billion revenue
by the auto vending industry, and saves around $5 million in
import substitution-means a lot for the national economy. Better
regulations and protecting the interests of the consumer, however,
will also play a vital role to instill the much needed customer
loyalty which will pay dividend in the years to come. Of late the
Government has been under pressure to ask the auto companies to
reduce the prices of the vehicles. However it now appears that the
Government may not pressurize the carmakers to cut prices as
they are multinationals and the country cannot afford to give any
negative signal to foreign investors, especially Japanese ones, who
have been supportive all along.
Dewan Farooque Motors Limited was incorporated in Pakistan on
December 28, 1998 as a public limited company. The shares of the
company are quoted on all the Stock Exchanges in Pakistan. The
Company commenced commercial production through the interim
facility from January 01, 2000. The main facility came into

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commercial operation from January 01, 2001. It is the baby of the


Auto and Allied sector.
The Company has entered into separate technical license
/collaboration agreements with Hyundai Motor Company, Korea
and KIA Motors Corporation, Korea. The principal activity of the
Company is the assembly, progressive manufacturing and sales of
Hyundai and KIA vehicles in Pakistan. Its 4-wheel drive 'Sportage',
sedans like 'Spectra' 'Pride' and 'Santro' has been well received by
the public not to mention the pick-up 'Shehzore'. The response to
the new 'Santro Club' launched in October 2002 has been very
encouraging and this has enhanced capacity utilization and
profitability of the Company
During the year 2002, sales turnover increased to Rs.4, 949.5
million as compared to last year's sales of Rs.4, 024.40 million.
This was largely attributable to the successful launch of KIA
Sportage 2000 c.c. Diesel sports utility vehicle and completion of a
large fleet order for supply of Shehzore Trucks during the last
quarter of the year under review. The Gross Profit ratio increased to
8.77 percent as compared to 5.45 percent of previous year. The
improvement in the gross profit is attributable to favorable
exchange rate of Pak rupee against U.S. Dollar and improved sales
mix ratio. The manufacturing overheads increased by rs.41.864
million and administration & selling expenses by Rs.33.790 million
as compared to the previous year.
The financial expenses increased by Rs.104.812 million as
compared to previous year. The financial expenses increased by
Rs.104.812 million as compared to previous year as the mark up
was charged for the full year as compared to six months in the last

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year.
The net increase in cash and cash equivalents and increase in
equity amounts to Rs.60.595 million and Rs.11.942 million
respectively. Being initial years of the Company's operations
resulting in low profitability, coupled with need for retaining funds
to meet debt retirement schedule, the Board has not recommended
any dividend for the year 2002.During the year 7,677 units were
sold. Kia Sportage, sports utility vehicle, was launched during the
last Quarter of the year. It received an overwhelming response and
the sale of this vehicle during the year exceeded 500 units. To help
customer cope up with increased cost of fuel and the Country to
save valuable foreign exchange, natural gas versions of Spectra,
Classic and Santro models were also launched during the year.
With these new versions of various models, Dewan Motors is the
only Company in the Country, which offers a wide range of
vehicles, which run on natural gas. These models were well
received by the market. The Company has introduced a new model
of Hyundai Santro vehicle by the name of Santro 'Club'. The
introduction of this vehicle launched in the second quarter of the
financial year 2002-2003 has been well received and has increased
sales volumes. The market domination of Hyundai Shehzore in the
1-ton Pickup Truck segment remained exceptional and the market
share during the financial year was 61%. The market performance
of Grace Van also remained satisfactory with 111 units sold during
the year. Apart from the vehicle sales the after-sales parts
operations also showed improvement as compared to the previous
year. To ensure availability of Hyundai/Kia spare parts in the
remote areas where dealerships are not present, the Company has

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appointed authorized parts jobbers. This strategy will meet


customers' requirement of after-sales parts in those areas. During
the year, four new dealerships were added to the 3S dealership
network, bringing the total number of Hyundai-Kia dealerships to
twenty-two. In order to ensure availability of Hyundai and Kia
vehicles and after-sales services at the customers' doorstep, the
Company plans to further expand the dealership network by adding
dealerships in those cities and areas where dealers are not present.
In order to improve and upgrade the technical skills of service staff,
DFML conducted in-house and on the job-training programmers.
The main objectives were to provide quality product support,
achieve customer satisfaction and minimize complaints related to
the product and its operation.
It is worth mentioning that the earning per share for the year 2002
is Re.0.16 compared to a negative EPS of Re.0.42 for the previous
year. The book value per share has also improved marginally at
Rs.10.60 compared to Rs.10.44 previously.

Company Philosophy

The Group's corporate philosophy is based on following


principles laid down by its founding fathers and pioneers:

• Credibility, integrity and honesty


• Straight forward business dealings
• Work as a worship
• Spirit of social service and human respect

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By following the above philosophy, the Group enjoys an


excellent corporate image amongst business
community, banks, financial institutions, and
governmental circles. The market price of Group
companies shares is the most prominent reflection of
this confidence.

Mission Statement

The mission of Dewan Mushtaq Group is to be the finest


Organization, and to conduct business responsibly in a
straightforward way.

Our basic aim is to benefit the customers, employees


and shareholders, and to fulfill our commitments to the
society. Our hallmark is honesty, initiatives and
teamwork of our people, and our ability to respond
effectively to change on all aspects of life including
technology, culture and environment.

We will create a work environment, which motivates,


recognizes, and rewards achievements at all levels of the
organization, because

IN ALLAH WE TRUST & IN PEOPLE WE BELIEVE

We will always conduct ourselves with integrity and


strive to be the best.

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THE AUTOMOBILE INDUSTRY IN PAKISTAN.

The total registered automotive vehicle (according to 1998 to


2002data) plying on the roads in Pakistan are bout 3,123,000,
which includes 604,000 motor cars starting from the British and
European and followed by Anglo-American cars, the country has
clearly decided in favor of Japanese cars. The country gave an
exclusive right in 1983 to one of the Japanese car manufacturers to
make a totally local car within Pakistan. This exclusiveness,
however, gave way in favor of another Japanese car manufacturer
1992.
The environment made in automobile industry is Rs. 5.344
billion including foreign equity of Rs. 1.532 billion. The industry
has total current capacity of 105,500 cars per annum.
The automotive industry contributes an amount of about Rs.
7.233 billion to the government revenue annually besides saving a
foreign exchange of US$ 95.5 million per year.
The passenger car industry in this country has great
prospectus. The Pakistani population is about 140 million people,
and the present rate of car on the road, the average comes to be
232 persons per car, which is far below the normal standards of
109 persons per car among the developing countries, particularly
the South East Asia and the developed world, where the average is
8 persons per car. There has been a growth of passenger cars in the
country, which were 87,043 for the period 1984 to 1989 and grew
to 240,304 including light commercial vehicles during the period

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1990 to 1997 at an average growth rate of 7.7% in 8 years or 31.15


since 1994 given diagram shows the number of vehicles per 1000
persons.

KEY PLAYERS IN THE INDUSTRY


Total number of existing players at this time in they industry
is five and one is planned.

1. Toyota Indus Motors


2. Honda Motors
3. Pak Suzuki Motors
4. Nissan Qandhara motors
5. Dewan Farooque motors
And among these three, Toyota Indus Motors has got a
leading position.

TABLE 2: THE ENVIRONMENT OF AUTOMOBILE INDUSTRY


Up to 1000 1300 & Van Pickup 4X4 Capacity
1000 to above
cc 1200
EXISTING

Toyota O O 20000

Suzuki O O O O O O 50000

Honda O 10000

Nissan O 12000

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DFML O O 10000

PLANNED BRANDS

Ssang O 3500

Young

Total Capacity 105,500

MARKET 47000

340000
Passenger Car

LCV & Jeep 13000

Capacity available for future 58,500

The survival of the local industry which employs over 125,000


persons directly or indirectly and contributes a substantial revenue
amounting to Rs.7 billion annually, excluding Rs.3 billion revenue
by the auto vending industry, and saves around $5 million in
import substitution-means a lot for the national economy. Better
regulations and protecting the interests of the consumer, however,
will also play a vital role to instill the much needed customer
loyalty, which will pay dividend in the years to come.
Of late the Government has been under pressure to ask the auto
companies to reduce the prices of the vehicles. However it now
appears that the Government may not pressurize the carmakers to
cut prices as they are multinationals and the country cannot afford
to give any negative signal to foreign investors, especially Japanese
ones, who have been supportive all along.

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Dewan Farooque Motors Limited was incorporated in Pakistan on


December 28, 1998 as a public limited company. The shares of the
company are quoted on all the Stock Exchanges in Pakistan. The
Company commenced commercial production through the interim
facility from January 01, 2000. The main facility came into
commercial operation from January 01, 2001. It is the baby of the
Auto and Allied sector.
The Company has entered into separate technical license
/collaboration agreements with Hyundai Motor Company, Korea
and KIA Motors Corporation, Korea. The principal activity of the
Company is the assembly, progressive manufacturing and sales of
Hyundai and KIA vehicles in Pakistan.
Its 4-wheel drive 'Sportage', sedans like 'Spectra' 'Pride' and 'Santro'
has been well received by the public not to mention the pick-up
'Shehzore'. The response to the new 'Santro Club' launched in
October 2002 has been very encouraging and this has enhanced
capacity utilization and profitability of the Company
During the year 2002, sales turnover increased to Rs.4, 949.5
million as compared to last year's sales of Rs.4, 024.40 million.
This was largely attributable to the successful launch of KIA
Sportage 2000 c.c. Diesel sports utility vehicle and completion of a
large fleet order for supply of Shehzore Trucks during the last
quarter of the year under review. The Gross Profit ratio increased to
8.77 percent as compared to 5.45 percent of previous year.
The improvement in the gross profit is attributable to favorable
exchange rate of Pak rupee against U.S. Dollar and improved sales
mix ratio. The manufacturing overheads increased by rs.41.864

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million and administration & selling expenses by Rs.33.790 million


as compared to the previous year.
The financial expenses increased by Rs.104.812 million as
compared to previous year. The financial expenses increased by
Rs.104.812 million as compared to previous year as the mark up
was charged for the full year as compared to six months in the last
year.
The net increase in cash and cash equivalents and increase in
equity amounts to Rs.60.595 million and Rs.11.942 million
respectively. Being initial years of the Company's operations
resulting in low profitability, coupled with need for retaining funds
to meet debt retirement schedule, the Board has not recommended
any dividend for the year 2002.
During the year 7,677 units were sold. Kia Sportage, sports utility
vehicle, was launched during the last Quarter of the year. It
received an overwhelming response and the sale of this vehicle
during the year exceeded 500 units.
To help customer cope up with increased cost of fuel and the
Country to save valuable foreign exchange, natural gas versions of
Spectra, Classic and Santro models were also launched during the
year. With these new versions of various models, Dewan Motors is
the only Company in the Country, which offers a wide range of
vehicles, which run on natural gas. These models were well
received by the market. The Company has introduced a new model
of Hyundai Santro vehicle by the name of Santro 'Club'.
The introduction of this vehicle launched in the second quarter of
the financial year 2002-2003 has been well received and has
increased sales volumes.

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The market domination of Hyundai Shehzore in the 1-ton Pickup


Truck segment remained exceptional and the market share during
the financial year was 61%. The market performance of Grace Van
also remained satisfactory with 111 units sold during the year.
Apart from the vehicle sales the after-sales parts operations also
showed improvement as compared to the previous year. To ensure
availability of Hyundai/Kia spare parts in the remote areas where
dealerships are not present, the Company has appointed
authorized parts jobbers. This strategy will meet customers'
requirement of after-sales parts in those areas.
During the year, four new dealerships were added to the 3S
dealership network, bringing the total number of Hyundai-Kia
dealerships to twenty-two. In order to ensure availability of
Hyundai and Kia vehicles and after-sales services at the customers'
doorstep, the Company plans to further expand the dealership
network by adding dealerships in those cities and areas where
dealers are not present.
In order to improve and upgrade the technical skills of service staff,
DFML conducted in-house and on the job-training programmers.
The main objectives were to provide quality product support,
achieve customer satisfaction and minimize complaints related to
the product and its operation.
It is worth mentioning that the earning per share for the year 2002
is Re.0.16 compared to a negative EPS of Re.0.42 for the previous
year. The book value per share has also improved marginally at
Rs.10.60 compared to Rs.10.44 previously.
(The writer is Head of Research. Switch Securities (Pvt.) Limited, (a
wholly owned subsidiary of Islamic Investment Bank Limited).

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VOLUME & SIZE

THE PROJECT
The aim of joint venture is progressive manufacture of Toyota
vehicles and components parts with an initial annual capacity of
20,000 units expandable to 40000 units or more to meet the
requirements and quality standard of the automotive industry for
tile Twenty-first Century. A detailed deletion program envisages a
deletion of 55% (average). Deletion for the first year was 21.01% .

INVESTMENT
The project envisages a total investment o f Its 1412 million,
including equity of Rs. 786 million. The estimated project cost
includes total fixed cost of Rs. 1,411,340,000; total equity of Rs.
983500000 and total debt of Rs. 428,840000.

LOCATION & FACILITIES


The production facilities are located at Dewan city sajawal
130 kms away from Karachi on land measuring over 105 acres at a
cost of Rs. 37 million. High quality metallic road to the factory site
is available along with other infrastructure facilities provided by
authority.
The necessary civil work for production facilities comprise of:
v Paint Shop
v Assembly Shop
v Welding Shop
v Compressor Transformer Room

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v Guard Room
v Internal Roads
v Underground & Overhead tanks, etc.
The main factory building & ancillary works are spread over
covered area of around 40,000 sq. meters.

PRODUCTION CAPACITY
Production Per Day = 54 units
Production Per Day Capacity = 80 units

Hyundai & Kia research & development:

To retain its cutting edge of technology, and to meet the


constantly rising quality expectations of its customers,
Hyundai Motor Company spends 8% of its revenue in
R&D activities. Following the acquisition of Kia Motors
Corporation, Hyundai Motor Company now has eight
R&D centers in different parts of the world. This has
resulted in superior technological competitiveness in the
development of advanced vehicle programs including
the electric, solar, hybrid and CNG fuel cars as well as
intelligent vehicle systems.

Technology & quality:

Hyundai & Kia have taken tremendous strides in the


pursuit of quality at all levels of the organization from

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design engineering to process control and final


assembly. Through its state-of-the-art technology, both
Hyundai & Kia are committed to meet the highest
standards of performance, durability, safety and comfort
to offer its customers the best value for their money.
Conscientious environmental manufacturing processes
ensure harmonious relationship between nature and the
people who inhabit it.

Dewan Farooque motors limited:

Dewan Farooque Motors Limited (DFML) was


established in 1998 with the signing of Technical
Licensing Agreement (TLA) with Hyundai Motor
Company of South Korea for the distribution and
progressive manufacture of Hyundai vehicles, their
spare parts and accessories in Pakistan. Hyundai is the
largest business group of South Korea and contributes
25% to the GDP of South Korea.

DFML is an important addition in the family of Dewan


Mushtaq Group (DMG). It is fully owned by the group
and local Pakistani investors showing the commitment
of DMG with the people of Pakistan. The company is
also listed on all the stock exchanges of Pakistan.

DFML is committed to offer cost competitive products


offering superior value for money in a market that is
dominated by relatively expensive Japanese products of
outdated design and technology.

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DFML'S product range:

DFML is the only company manufacturing Hyundai and


Kia vehicles in the same plant outside the parent
country, Korea. It has plans to expand its product range
to cover all segments of the automobile market. It has
already introduced products belonging to 6 distinct
segments of the automobile market including 1000 cc,
1300 cc and 1500 cc sedan car segments as well as a 1-
ton pickup and van and to top it all with the one and
only Sports Utility 4x4 Vehicle (SUV) available in
Pakistan

12 seat commuter van — 2600 cc Hyundai grace


commuter van:

DFML started its business activities with the launching


of its Completely Built Up (CBU) 12 seated Grace
Commuter vans in April 1999. These luxury vans are
well accepted by both individual and corporate
customers, mainly because of their superior quality,
comfort, and highly competitive prices. It is also the
market leader in it category.

1-ton pickup — 2600 cc Hyundai shehzore:

The company launched its first locally assembled


2600cc 1.0-ton pickup Hyundai Shehzore in September

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1999. This vehicle has already acquired market


leadership for the second consecutive year in the LCV 1-
ton pickup market with approximately 60% market
share.

Compact sedan — 1300 cc Kia classic / ngv:

DFML launched 1300 cc locally assembled KIA Classic


on February 2000. Kia Classic has been well accepted
by the Pakistani customers due to its high Value For
Money (VFM). A bi-fuel CNG variant of this car Kia NGV
fitted with purpose built Italian CNG kit and specially
designed cylinders is also being offered to the cost
conscious customers.

Economy car — 1000 cc Hyundai santro club:

A product that has most advanced and latest


technology is Santro. It is the 1000cc, 4 cylinders, 12
valve Multipoint Electronic Fuel Injection (EFI). Santro
is more than just a car, it communicates the mood,
portrays the status, its agile performance and nimble
handling combined with its now famous fuel efficiency
makes it the best buy in its class. More than just
another small car, Santro has an added dimension of
versatility due to its unique design, spacious interior
and a friendly disposition suitable for individual lifestyle
or for family use providing best value for money.

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It has got everything a smart family needs these days.


To name a few, Santro has the price affordability, fuel
efficiency & low maintenance cost to meet small budget,
instrument panel within convenient reach of the driver,
a stereo to suit your acoustic needs, quiet air-
conditioning, spacious trunk, alloy wheel, stop & fog
lights, etc. and many more.

Luxury Sedan Car — 1500 Cc Spectra:

Spectra boasts an impressive 1500 cc, EFI in-line 4


cylinders, 16-valve, DOHC engine, with manual and
automatic transmission options. It offers noiseless drive
with unmatched comfort & safety. This car has an
exceptionally strong road grip, good pickup and glides
even on rough surface. Spectra offer unmatched space
& creature comforts of much expensive Japanese origin
cars at an incredibly affordable price.

4x4 sports utility vehicle — 2000 cc turbo-diesel


intercooler grand Sportage:

The latest addition to DFML's product lineup is Grand


Sportage. Due to its winning qualities, it is doing
outstandingly well in all the markets by appealing to the
broadest demographic segment possible. It has not only
provided an upgraded path for existing car owners, but
with its bold, unique styling and superb performance it
has also attracted new buyers who have previously
never considered purchasing a SUV.

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It is the first Sports Utility Vehicle (SUV) to be


assembled in Pakistan. The introduction of Grand
Sportage has marked the beginning of a whole new
chapter of grand motoring in Pakistan.

It is powered by sophisticated 2.0 liter, Turbo


intercooler diesel engine. It has flexible seating, strong
ladder frame body design, sophisticated double
wishbone at front and 5-link coil spring rear suspension
to deliver a remarkably smooth car like ride and
handling. This suspension system is equally suited for
on-road and off-road driving conditions while providing
a ride comfort akin to luxury passenger cars.

Cng vehicles:

Kia Classic and Spectra have also been introduced with


dedicated design / purpose built factory fitted CNG fuel
system. The bi-fuel CNG system provides flexibility of
operation on gasoline or CNG with utmost ease and
convenience combined with economical and ecological
advantages. Both the products have been well accepted
in market.

3s dealership network:

DFML, in order to provide complete After sales support


to the customers, has established a nationwide

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dealership network of 22 Hyundai-Kia 3S (Sales, Service


and Spare Parts) dealers, under its roof.

The Central Parts Depot. Located at Karachi is the nerve


center of supplying Hyundai and Kia spare parts
throughout Pakistan.

DFML's state-of-the-art factory:

Dewan Farooque Motors Limited has one of the most


advanced automobile assembly plants of South East
Asia. Located in Sajawal, Thatta, 152 Kilometers from
Karachi was built in a record time. The plant stands on
a 40-hectare plot and has been built with an initial
investment of more than Rs.1.8 billion. Its unique
feature include, inter-alia, the provision of high
standard of living accommodation for all categories of
employees, the availability of land for expansion of
production facilities, and the in-house generation of
electric power. It has a production base of 10,000 units
p.a. on a single shift basis.

The plant is first automobile manufacturing unit in


Pakistan to be independently invested by 100%
Pakistani investors. The groundbreaking ceremony for
the plant was held in August 1999, and the first pilot
Santro was ready in a record-breaking time of 6
months. Today the modern state-of-the-art plant is
rolling out cars every day. This is the first automobile

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assembling plant in Pakistan with the state of art


robotic equipment.

A) BODY SHOP:

Spread over an area of 8,400 square meters, the Body


Shop is equipped with the most modern welding
equipment and automatic type jigs & fixtures from
Korea.

The well-trained and experienced manpower is making


the best use of the available equipment and is practicing
up-to-date production and quality control techniques to
produce highest quality vehicle bodies here.

B) ROBOTIC PAINT SHOP:

The Paint Shop is a combination of excellent


engineering know-how and design with the most
efficient German and Korean equipment.

The plant has a state of the art CED paint shop from
Shindurr. Shindurr has German technology and has
constructed number of CED paint shops in Europe, Far
East and Asian countries. The Cathodic Electro
Deposition (ED) System provides durability to the body
and protection against rust.

The facility also includes high-speed integrated setup of


Robots to provide unprecedented paint quality. Painting
Robots are supplied by DURR-BEHR of Germany, the

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most technologically advanced name in the world for


such equipment, are being used to paint the vehicle
bodies for the first time in Pakistan. This is the first
Automobile assembling plant in Pakistan with the state
of the art Robotic Equipment. The use of robots results
in the production of evenly sprayed, high gloss, defect-
free and high quality painted bodies.

C) ASSEMBLY SHOP & INSPECTION LINE:

The combination of the conveyors provided by


SEOKWANG of Korea, and the ANDON System installed
throughout the shop provide efficient communication
and better control of production activities.

The tester line, with high precision equipment from


Iyasaka - Korea, is employed to test and adjust the
vehicles in order to ensure defect free and highest
quality output. Exhaust gas analyzers are also used to
ensure that environment friendly automobiles are
rolled-out from the factory.

TOTAL CUSTOMER CARE:

Dewan Farooque Motors Limited strives to serve its


valued customers. The in-house Customer Care &
Training Departments has been instrumental in
conducting various seminars and workshops for
developing professional skills and techniques for
effective customer handling to provide high value

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products and services to customers and to ensure


highest level of customer satisfaction.

DFML — AN AGENT OF CHANGE IN THE


AUTOMOBILE INDUSTRY:

Ever since its entrance into the automobile arena,


DFML has proved to be an agent of change. During the
last two years, the automobile market has undergone a
transition with many new product introductions and
healthier competition. The well-entrenched Japanese
assemblers have also reacted to the changed market
scenario, which is increasingly becoming a supplier's
market rather than a buyer's market.

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Support And Service

Dewan Farooque Motors a progressive automobile company with


diversified range of vehicles catering all the transportation needs of
Pakistan with state of the art technology and industry standards in
east & west. DFML followed the lead of those companies and
selected products accordingly to be leaders in automobile industry
by providing options of Hi-Tech vehicles.

Dewan Farooque Motors is heading forward with 3S concept to


cater the need of our most appreciated Customers who not only
believe in us but also love our products. To provide the best of the
best after sales service we have defined new standards & new
ingredients for 3S, exclusive only to DFML dealership network are
3S (Speedy, Secure, Sweet) service facilities.

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Recently the concept of vehicles service has change from making


profit from repairs & maintenance to the creation of referral sales
by studying Customer Satisfaction, Loyalty & Customer needs.
Therefore the objective of Dewan Dealership network is to construct
sweet service system of Customer Satisfaction, for this DFML
dealers are to provide customers with both the satisfactory services
for the proper use of their vehicles and maintenance to keep them
at the best condition.

To make it come true, the Service teams of DFML & Dealerships


have enough technical capability to give customers confidence in
after sales service, and also have a high level of customer handling
capability to give customers a good impression. In other words, all
the service staff of DFML & Dealership will & do work for
customer's satisfaction in mind.

Customer's trust in our Service teams will be accomplished only


after our Service teams possess the necessary abilities of
repair/maintenance, customer handling, and knowledge on
warranty and good attitude to the customers.

Service Trainings:To maintain & to achieve the best possible


customer satisfaction DFML has a basic policy & major elements
are continuous grooming of its dealership technicians.

• In House Trainings at Dealership


• On Job Trainings (OJT's) at Dealership & DFML Training
Center
• Technical Service Trainings at DFML Training Center.

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Service Clinics:

• Enhance customer satisfaction and trust in DFML products.


• Generate customer's awareness regarding the importance of
quality service performed at DFML Dealership network.
• Educate customers on preventive maintenance.

Special Services Tools (SST):

All DFML dealers have Special Service Tools, which are


indispensable for disassembly and reassemble of Hyundai & Kia
vehicles in service to satisfy the customers. This also enables
technicians to be more proficient in repairing DFML products.

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Hi-Scan Pro:

With all vehicle's computer controlled complexity, today's cars


require more than a normal toolbox to keep them running
smoothly. Computer controls and a vast array of sensors require
today's technicians to have access to all of that information going
on inside the car at a dealership, that is why every DFML
dealership has a HI-Scan Pro for Hyundai & Kia.

Hi-Scan Pro controls operation of all diagnostic System components


and integrates data from the all sources to assist the technician in
the identification, isolation and repair verification of automotive
electronic faults. The Hi-scan pro that is the heart of electronic
diagnosis provides the user interface to the system and data
integration and processing.

The function of Hi-Scan Pro is as follows:

Diagnostic Trouble Display all DTC for the selected ECM and
Codes: erase DTC.

Current Data: Display Current Sensor Values.


Flight Record: Record Current Sensor Values up to 8
items at once.

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Actuation Test: Allow each actuator to be forcibly driven


by Hi-Scan Pro.
Simu-Scan: Display current data with direct sensor
simulation and meter test simultaneously.
Other Functions: Freeze Frame Data and CARB OBD-II.
Diagnosis Support Parts Analysis (Engine/Auto Transaxle),
function: Oscilloscope, Multi Meter Actuator Driving
and Sensor Simulation.

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PLANT & MACHINERY

IMPORTED MACHINERY
Imported machinery and equipment comprises of:
¶ Pre-treatment and lease coating equipment
¶ Panel
¶ Heat Exchanger
¶ Spray Booth
¶ Drawing Oven
¶ Conveyor And Hoist Controlled Equipment And Panel
¶ Mearing And Checking Machines
¶ Inspection, Testing And Controlling Equipment
¶ Pneumatic Tools
¶ Spot Welding Equipment
¶ Air Compressor Generator, etc.

LOCAL MACHINERY

Local procured machinery was comprised of:


¶ Conveyors overhead crane
¶ Vehicle testing equipment
¶ Generator sets
¶ Jigs and fixtures
¶ Welding equipment cables and electrical fittings
¶ Air compressor
¶ Telecommunication system

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¶ Computer equipment
¶ Fire fighting equipment, etc.
All local procured machinery was brand new as, well.

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MANAGEMENT

BOARD OF DIRECTORS

Chairman Mr. Dewan Zia ur rehman farooqui


Managing director Mr.Dewan Mohammad Yousaf
Farooqui
deputy director Mr.Dewan Abdullah Ahmed
Directors Mr.Dewan ghulam Mustafa khalid
Directors Mr.Dewan Abdulrehman Farooqui
Directors Mr.Dewan M.Ayub khalid
Directors Mr.Dewan Asm Mustafa Farooqui
Chief Executive Mr.Dewan Mohammad Yousaf
Farooqui

WORKING DEPARTMENTS OF DFML

DEPARTMENTALIZATION

"It means the process of grouping related work activities into


manageable units is called departmentalization."
Departmentalization is being very common in every organization as
it facilitates the working of the organization.

DEWAN FAROOQUE MOTORS LIMITED

Marketing Customer Spare Logistic


Finance Satisfaction Planning Service
& Sales Parts Cell

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WORKING DEPARTMENT OF DEALERSHIPS

Sale Service Spare Parts Customer’s


Satisfaction

DEALERSHIP NETWORK

The groundbreaking concept of a synchronized dealership


network setup by DFML has revolutionized automobile marketing
in Pakistan. The motivation behind this concept is to provide the
best help to the customer. This innovative concept revolved around
the “Kia & Hyundai Dealership” which encompasses three critical
areas, all under one roof.
These are:
¶ Sales
¶ Services
¶ Spare parts
In Pakistan, 38 such dealerships have been setup, with the latest
facilities, repair equipment and machinery, managed by highly
skilled and training individuals, in order to provide the customer a
hitherto unknown level of service.

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STRATEGIC ANALYSIS

ENVIRONMENTAL SCANNING

Because of the continuous change in environment, there is an


element of uncertainty in the environment. The environment has
become highly complex and dynamic. Keeping this thing in mind, a
company must look for a strategic fit between what the
environment wants and what the company has to offer, as well as
between what the company needs and what the environment can
provide. That’s why before an organization begins to formulate
strategy, the management must screen the environment and
identify external environmental factors, which affect the
organization.
The environmental variables are as follows:
1) Economic forces
2) Politico-legal forces
3) Technological forces
4) Socio-cultural forces

ECONOMIC FORCES
Economic factors are those, which regulate the exchange of
material money, energy and information. Following economic
variables have affected the automobile industry as well as DFML.

INFLATION
Inflation means, “Average rise in prices of commodities”.
According to Economic Survey of Pakistan, the inflation rate in

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Pakistan is about 9%. The main reason of this rising trend is


devaluation of currency by the State Bank of Pakistan.
.
Due to this turn by turn devaluation, the input costs have
increased and DFML has been affected by these devaluations
because the main component CKD it (Complete Knocked Down)
unit is imported from Korea that amounts to 75% of the cost of
total assembled car.

EFFECT ON PURCHASING POWER OF PEOPLE


Due to inflation, the purchasing power of people has also
decreased and buying behavior has resulted in significant decrease
in the sale.

TAXATION

Government tax policies have severely affected the auto


industry. Though the Government reduced the Sales Tax from 18%
to 15% and abolished 2% pre-shipment inspection charges, but
duty on CKD kits remained high affecting production cost and CVT
(Capital Value added Tax) continued to hamper smooth working of
industry, also DFML. Presently, the CVT rate is 6.25% (both for tax
and non-tax payers). The government announced import duties at
the rate of 25% to 35% but all these measures affected DFML as
well as the industry. The CVT rate though party rationalized, was
still not sufficiently favorable to stimulate increase in sale.

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DEMAND TO GROW IN LINE WITH GNP


Vehicle demand in the country has posted a CAGR of around
7% over the last ten years with a forecast average GDP growth rate
of 5% per annum over the medium term, in line with its long-term
historic growth. They expect demand for cars to grow at a little
under 5% per annum over the same period. Pakistan has one of the
lowest numbers of vehicle per capita among the developing world
and therefore, offers a lot of room for demand growth. Slower
forecast growth in the upper segment market of only 5% per
annum is indicative of the tougher competition ahead for Indus and
other manufacturers of larger engine cars.

POLITICAL AND LEGAL FORCES

LAW AND ORDER

According to sources from DFML, the state of economy is far


from satisfactory Law and order situation is adversely affecting the
company. The law and order especially in Karachi, is adversely
affecting production, as far as the demand for new vehicles is
concerned.

SMUGGLING
According to sources from DFML, the presence of smuggled
cars in the market is affecting the vehicles sales, and also the
government's recent policy to legalize these cars as short-term
strategy for revenue collection to meet the IMF dictated revenue
collection target of Rs. 305 million, will hurt the industry in 11

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years to come. Though, exact number of smuggled cars, those; on


roads' with fake registration numbers or without any registration at
all and those piled up on and around Pakistan's borders especially
with Afghanistan, in Baluchistan and NWFP,
For an entire car industry which is producing only about
45,000 cars on average per year, the legalization of the smuggled
cars will cause an indispensable damage to it..

POLITICAL INSTABILITY

Not only DFML is suffering but also overall industry is


suffering from the political instability in Pakistan. This political
instability has acted like threat to the industry because of
inconsistent policies of taxation, tariff and regulating duties.
Also, political instability in Afghanistan has caused the loss of
opportunity for DFML to export the vehicles to Central Asian
countries. The reason being that Karachi is the nearest port to
Central Asian countries.

TAXI SCHEME
The after-effects of Yellow Cab Scheme are still being felt
because 3,000 taxis are still present in market, waiting to be sold.

TECHNOLOGICAL FORCES

Technological forces make problem-solving inventions. This is


very important factor, you have to assess that how you made
advancement in technology. DFML is making new technological
change in its cars. Keeping in view the environmental conditions.

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DELETION TARGET
Deletion policy is what number of parts and spares will be
manufactured locality through vendors. It is actually that "how
much the car is localized". Engineering Development Board of
Pakistan sets this deletion policy. It gives a specific deletion target
(either companies specific or industry specific to the companies in
the automobile industry. The industry specific deletion policy
(instead of company specific deletion policy acts as an entry barrier
for the new entrant in the automobile industry).
An industry specific deletion program requires fixation of a
minimum level market for all firms in the same industry based on
the previous year achievement and target for the maximization level
of deletion. Thus new industrial units have to start from the level of
deletion already achieved in that industry. The Industry Specific
Deletion Program (ISDP) therefore requires new entrances to start
at that deletion levels that have already been achieved in the
industry. This policy discourages the new entrance with the result
that a monopoly situation has been created with absolute
domination of Japanese vehicles..

CAPACITY

In case of DFML, its overall capacity 20000 units per year,


but it is presently operating at 8000 units per year.
According to DFML Comral1y sources, during the next year
they will double their production up to 20,000 units per year,

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which. Reduces their per unit cost. Hence in the short run the
company probably will produce more than market demand at the
current price and may reduce its price hoping that it can recoup its
cost from a greater number of sales, within the country as well as
outside the country.
THREAT OF SUBSTITUTION

In effort, all corporations within an industry compete with


firms in other industries that produce substitute products.
Substitute products appear to be different but can satisfy the same
need as another product.
In case of DFML, the substitute of its products Pak Suzuki
Motors Company. It has posed and posing a great threat to DFML
because of following reasons.
1. Suzuki Motors Company established in 1984 and since
localized its cars by about 60%. Its CKD kit cost is 62% of
total production cost. It is preparing its motor car up to 800cc
and 1300cc, because of highly localization percentage the
price of its car is less than the ones serving upper segment
are market.
2. In the future, the market for smaller sized engine cars is
expected to grow at about 5% per annum.
3. it is also believes that the lower projected growth will likely
limit DFML’s target market over the next three years.

BARGAINING POWER OF SUPPLIER

Suppliers can affect an industry through their availability to raise


prices or reduce the quality of purchased goods and services.

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The Industry specific deletion policy will cause an increase in


number of vendors end will result in the existence of strong vendor
industry but until the vendor industry does not exist in appropriate
size, the existing vendor will exhibit their powers to bargain their
cost of services.
Moreover, for DFML, the vendors work at an established rate,
that only vary in prices whenever inflation take place.
They give incentive to their vendor supplier to reduce their
bargaining power. The incentive may be in the form of training in
Korea and also can be monetary terms.
According to Jay Barney "‘the study of sustained competitive
advantage depends in a critical way, on the resources endowments
controlled by a firm.
It is very important for the organization to develop a strategic
fit between capability and their resources in changing environment,
Resources are only one of several influences on company policy and
in cer1.ain circumstances may have first class resources, which are
fully exploited and controlled but be operating in highly depressed
and unprofitable market.
It is very important for the organizations to identify their
resources, what resources they have for achieving their goal, it is
called resource audit. The following factor involve, the resources
that DFML is employing:
¶ Marketing
¶ Human Resource
¶ Technology
¶ Finance

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MARKETING AS A RESOURCE

Product which company offers is also resource of company.


Larger the product mix, greater will be return on sale of product.
DFLM company has analyzed needs and wants if its customer and
has made available a broad product range to suit their need. All the
cars in its product range are a beautiful brand of style, economy
and technology. Now they are going to increase its product range by
introducing new models of kia and Hyundai cars in year 2004 that
also possess all the qualities, which its all the cars have.
.

CHANNEL OF DISTRIBUTION

DFML has a manufacturer-sponsored retailer franchise


system. They license dealers to sell the cars. The dealers are
independent business people who agree to meet various condition:,
of sales and service.
In this context, they have established a network of 39 dealers
all over the country.
The groundbreaking concept has revolutionized automobi1e
marketing in Pakistan. The motivation behind this concert is to
provide the best help to customer, according to its corporate
phi1osophy customer satisfaction.
This innovated concert revolves around the "Hyundai & Kia
Dealership", which Encompasses three critical areas; sales,
services and spare parts all under one roof.

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All the 39 dealerships have been sent up with latest facilities,


repair, equipment and machinery, manned by highly skilled and
trained individuals, in order to provide the customers, a higher to
unknown level of service. The dealership has already access to
genuine spare parts.

PROMOTION

Modern marketing demand more than just develops a good


product, pricing attractively, making it available to target
consumer.
So total marketing communication program also consist of
advertising, personal selling, ales promotion and public relation
tools.

ADVERTISING

Since company has develop the market of its product to such


extent that they have not to advertise to the extent the competitors
do. They are extending their market through electronic media,
newspaper banners and boarding.

PERSONAL SELLING

DFML has appointed very trained experienced sales people in


a large number so they can observe the needs of customer and
make quick adjustment.

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AFTER SALE SERVICE

After sale service is very important aspect of the DFML.


DFML continued the dealership and fun within the company. The
establishment of a "customer relation tell" and the ongoing
programmer for training to their dealership, staff have resulted in
improved service to their customer the uninterrupted availability of
spare parts at reasonable prices throughout the country .
In recognition of their achieving a higher standard of "after
sale service" in Pakistan Toyota Motor corporation of Japan has
presented the company its "Good performance award" which places
Pakistan in the highest category.

PRODUCT QUALITY

Developing a product involves the benefits that product will


offer. In there benefits and attributes the product quality level
sports products position in the target market product quality
stands for the ability of a product to the perform its functions.
Indus Motors has set up one of the most modern automobile
manufacturing plant in its region.
Quality of product has not been compromised with and very
heavy investment has been made to build its production facilities
based on state of the art technologies.
The whole body shall of the car is dropped into tank
containing 75 tons of point which is deposited electrochemically
onto the body.
The welding line utilizes a fully automatic process control
cycle for consistent quality and energy saving.

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PRICING

Simply defined, pricing is the amount of money charged for a


product of service. Price is the only element in marketing mix that
produces revenues.
All other elements represent costs. There are many factors
that affect the pricing policies of company.

COST

Costs set the floor of the price that the company can charge for its
product.
The major component of their component of their cost is CKD kit,
which is about 60of its raw material.

AREA OF PRODUCTION

FAVORABLE LOCATION

A favorable location indicates the strength of an organization;


the essence of favor ability is that whether the plant is located at a
place, which is near to the supplier (or not).

The plant is located at very favorable place; the port is near to


it. The general Tire Company is near to it from which it gets the
tires for its cars and save transportation cost. Though some of
vendors are also located in Lahore. But most of its vendors are
located in Karachi.

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TECHNOLOGY

The kind of technology employed by an organization gives an


important edge in terms of quality. Technology is of two types: labor
intensive and capital intensive (state-of-the-art technology, for
example). In case of DFML, the company has installed capital-
intensive technology. They are using conveyer belts to transfer a
car during assembling from are station to another station. They
have heat exchanger, spray booth, drying tower, etc.
For measuring and checking of locally manufactured parts in
order to maintain quality standard and to assist vendors in product
development, a state-of-the-art Quadrant Measuring Machine was
installed in 2001.
The company acquired new computer technology for the
implementation of software and its applications, which provides a
centralized database support integration between Manufacturing
and Financial systems, and is assisting the company in providing
meaningful data in time for management decision making.

Finance Department

Director heads this department. The department is divided into two


major divisions.
q Finance division
q Accounts division

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Finance Division

This division is further divided into these sections


⊕ Book keeping section
⊕ Payable section
⊕ Cash section
⊕ Budgeting section
⊕ Sales section
Accounts Division

This division is further divided into these sections


⊕ Import section
⊕ Fixed asset accounting section
⊕ Inventory section
⊕ Payroll section

Functions of director finance


Ø Primary function is to establish and maintain in
accordance with accepted principles all accounting
activities with in the company.
Ø To provide functional guidance for efficient running of the
department.
Ø Provide management with financial information to control
and plan the corporate activities.
Ø Cooperate with the external auditors of the company.

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IMPORT SECTION

This department works under the finance division and deals with
the foreign purchases of materials and equipment

REGISTRATION AS AN IMPORTER
Whenever a person/firm want to be registered as an importer. The
following steps are involved
1. Opening of a foreign currency accounts in the Bank.
2. Registration of chamber of commerce.
3. Application submission along with necessary documents to
Export Promotion Bureau (EPB) through Bank.
The application shows whether the importer is a commercial or an
industrial one. When the firm is registered through EPB as an
importer. Now L/C opening can make import of goods. The work of
L/C section starts from registration to the final payment and
receiving of goods.

Activities

Establishment of L/Cs
Maintenance of L/C ledger and import license register and
preparation of schedules.
Retirement and adjustment of bank documents and their
dispatch to Karachi for clearance of consignments
Arranging shipping guarantees
Checking bill of entries and submission to State Bank of
Pakistan.

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Operations

The job of L/C section starts when procurement department sends


the purchase order and quotation of supplier to LC section. L/C
section then writes an application for the issuance of L/C to
beginner bank (registered Local bank licensed by state bank to deal
with (foreign purchases) along with relevant documents
The government has divided the items into three categories
1. Freely importable
2. Restricted items
3. Barter System

DFML dealing with freely importable items. All those importable


items are insured items. Beginner bank then issues the L/C and
sends 4 duplicates and one original copy to L/C section.
2 copies kept by L/C section
1 copy sends to procurement department
A copy along with original is sent to advisory bank that make
dealing on account of supplier)
Advisory bank keeps the duplicates copy after remarking comments
on it and send the original one to the supplier (beneficiary)
Beneficiary then sends
Certificate Of Origin (certificate of assurance that product has
made by supplier)
Ø Airway Bill Or bill Of Leading
Ø Packing List invoice
Ø Insurance certificate

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To the advisory bank. Advisory bank then check the documents


either they are in accordance to the specification sent by the
beginner bank. If there is any discrepancy local bank is being
informed that further asks the importer if it is tolerable or not. If it
is tolerable the supplier sends shipment. Discrepancy is removed
after negotiation and shipment is forwarded. If items are not
insured, importer is responsible to make insurance before the
shipment. Beginner bank informs the importer about the shipment
date and sends all related documents

HS CODE SYSTEM

Harmonic code system (HS) is used worldwide for the


import/export of goods. It is a uniform system and codes of all
goods are used worldwide.

ROLE OF BANK

Bank pays a central role for the import of goods whenever payment
is made to the foreign supplier it is through the Bank, through the
letter of credit opening.

L/C OPENING

At first the procurement department calls for quotations for the


required good to be imported. After the acceptance purchase order
is placed, then L/C is opened through the Bank (licensed one by

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GOP). For letter of credit opening a Performa has to be filled along


with the required documents.
The application form shows the :
¾ Registration no.
¾ Valid date of L/C
¾ Class of importer
¾ Value of L/C
¾ Description of L/C
¾ Name of beneficiary
When these documents are completed the Bank opens the L/C.

The L/C shows the:


¾ Amount of L/C
¾ Name of the importer
¾ Detail of merchandize
¾ Purchase order number
¾ Insurance Company names (NIC)
¾ Mode of transport
¾ Cargo name or shipping company name
¾ Duration of L/C destination
¾ Name of supplier
¾ Name of beneficiary Bank
¾ Name of the negotiating Bank
¾ Name of the Bank making payment (see annexure).

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RESTRICTIONS FOR L/C AND SHIPPING

The govt. of Pakistan has restrictions regarding the import of goods


like L/C opening only in govt. owned Bank, shipping only through
PNSC (Pakistan National Shipping Corporation). Cargo only
through P&A and insurance only through NIC

TENURE OF L/C

The validity of L/C is usually for 12 months but it can be extended


to 24 months for import of machinery/manufacturing items.

NATURE OF L/C

L/C can be
1. Revocable
2. Irrevocable.
Revocable L/C is a confirmed one and can be cancelled. Whereas
irrevocable L/C can’t be cancelled subject to the condition that the
beneficiary agrees and returns the L/C

NEGOTIATION OF L/C

L/C documents are freely negotiable in the beneficiary’s country.

ICC & UCP

International chamber of commerce (ICC) provides the base of L/C


opening and it is subject to uniform customs practice. It means
that if anyone of the parties made any fraud the involved Bank are

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not responsible. Banks are responsible only for money transfer not
goods transfer.

MINISTERY INVOLVED IN IMPORT

Ministry of commerce is for commodity movement whereas Ministry


of finance is responsible for monetary transactions.

PAYMENT TO BANK

The requirement by the Banks is that the consignor must submit


30% of the total L/C value on opening of the L/C and 70% is made
after receiving the original documents. But PFL makes 100%
payment on receiving of the documents. Any commission or mark-
up changes are also paid. With in the 15 days after the receipt of
material organization is liable to pay the local bank. In case of
delay, markup charges of 40PS per 100Rs Per quarter is made by
organization to local bank.

In case that consignment is reached and documents are not yet


received, local bank issues an adhesive form to PNSC that enables
the importer to receive the consignment Undertaking is given by
the importer. When original documents are received then
organization take the undertaking back
The supplier actually sends six photocopies of the documents to
the importer. The advisory Bank can get the payment from the
importer Bank representative in that country. When the local Bank

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receives the original document it informs the importer or the


importer itself contacts and on payments get the documents.

BILL OF EXCHANGE

The supplier issues a bill of exchange on which payment is made to


the consignee’s bank.

CLEARING AND FORWARDING

When the original documents are received. L/C section issues an


Authority letter and given that along with the documents to the
clearing agent. Currently M/s Javed Umer Enterprisers is working
as a clearing agent. The clearing agent then submits a Bill of Entry
(BOE) for clearing. On clearance from custom that BOE is shown to
PIA/PNSC for goods to be dispatched. The bill of lading shows.
¾ The vessel name
¾ Port of loading
¾ Port of discharge
¾ Shipment no
¾ Consignor name
¾ Origin of goods
¾ Measurement
¾ Gross weight
¾ Net weight

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The Certificate of Origin shows


¾ Shipment No
¾ Origin of goods measurement
¾ Port of discharge and destination
¾ Consignee name
¾ Name of Bank involved
¾ Description of goods.

IMPORT OF GOODS IMPORTED BY ANOTHER SECTOR

If another government institute imports some goods then a NOC


has to be taken from that institute for the import.
There is two more L/C type:
• Invisible L/C
• Repair L/C

Invisible L/C

This L/C is issued when an expert is hired from the foreign country
to repair the material after detail negotiation with Ministry of
commerce an approval note is sent to the state bank, that issues a
certificate to local bank for issuance of L/C.

Repair L/C

This L/C is issued if the machinery is sent to foreign country for


the repair purpose. State bank issues a certificate to the local bank
for the issuance of L/C. Also L/C section pays undertaking to the

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custom for security that if they are unable to load the material
back. Undertaking is some % of the value of the machinery. This
undertaking is taken back after the arrival of the item.

EXPORT CUM IMPORT

PFL sends machinery parts to the manufacturer for repair purpose.


First these are exported and then imported. For this purpose govt.
has strict criteria. At first it has to be proven that repair is
economical than the purchase of a new one. A request is send to
foreign exchange dept. of state Bank of Pakistan for issuance of
NOC. Then an export invoice is made showing name of company,
reason, description, and amount. Indemnity Bond is to be provided
for export/re-import that the company would re-import the item.
Insurance of the items is also necessary. For insurance NOC,
indemnity bond and export invoice is necessary. On approval
packing list is made and L/C is opened.

CASH BOOK SECTION

This section works under the finance department.


General hierarchy of the section is as follows

Cashiers
One cashier is assigned to write cheques for bank payments
Other cashier is assigned to write cheques for cash payments.

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Assistant Manager Cash:

He is assigned to feed vouchers of the previous day at the start of


the current day. At the end of the day the cashier has to summarize
the details of the cash in hand transaction by filling Petty Cash
Performa This Performa is being checked signed and kept record by
the Assistant Manager Cash.

That section is handling all the final payments to suppliers. Mainly


payments are being made through the cheques, which are either
dispatched to respective suppliers or handed over to
representatives of the supplier companies. A separate section
performs dispatchment of these cheques

PAYMENTS
Invoice, purchase order, Inspection report and MRR are bought to
ACCOUNT Payable section. After verification and approval Payment
Voucher is prepared which is send to cash section where a cheque
is being prepared against the payment voucher
Then forwarding letter and Cheque is sent to dispatchment section

RECEIPTS

In case of cash receipts the sale section prepare the covering letter
for the cash receipts duly signed by head of section end sent to
cash book section where they made credit entry in their cash
receipt book against the respective account.

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FOR FOREIGN PAYMENTS/ RECEIPT

In this case of purchase or sale. L/C is opened in banks. Banks


also hold all the relating documents. When the purchase or sale is
successfully made. Banks are also informed through letters. Then
banks sent advise to the company against that L/C and ACCOUNT.
They have either credited or debited the company ACCOUNT.
Adjustment Vouchers are duly filled by L/C section.

Two books are maintained

•Main cash took


•Petty cash book

Main casebook deals with payments and receipts.


Petty cash book deals with petty cash.

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INSURANCE, INVENTORY AND FIXED ASSET SECTION

This section also comes under the finance division. This section
provides the services of insurance for factory assets of all kind. It
also deals with transit insurance of incoming materials. The matter
related with providing insurance coverage to employees raising
insurance claims against loss of equipment, material and human
beings, perusal of the fired cases and recovery of claims, are also
deal by the section.
Insurance includes:
¾ Fire insurance
¾ General Insurance.
¾ Insurance Of vehicles
¾ Insurance of goods in transit.
¾ Platinum Rhodium theft and fidelity guarantee insurance.
¾ Cash facility insurance.
¾ Fire Insurance of Lahore office.
¾ Insurance of vehicles of Lahore office
¾ Journey insurance
¾ Insurance against building loans.
¾ Insurance of Employees cars against loans.

DFML insurance by two companies

1. Adam Jee Insurance


2. State Life Insurance Company.

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For employees DFML Group Insurance from State life while for
assets/material insurance dealing is with Adam Jee Insurance.
Insurance of employees is in the form of this coverage.
Temporary
Permanent
Partial
Permanent total.
Accidental death benefit (double compensation).

For assets/plants types of policies are


Fire policy
Machinery breakdown policy
Boiler vessel explosion policy

Marine policy is of two types.

1. Marine import policy


2. Marine inland policy.

For marine policy it is required in the purchase agreement that the


foreign supplier would inform the NIC on shipments of the goods.

Claim for insurance for assets:


Following factors are included for insurance
ü Depreciation
ü Escalation
ü Devaluation

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At times reinstatement basis was used for claim but for this huge
premium was to be paid currently company is using historical
basis.

ACCOUNTS AND BOOK KEEPING SECTION

In the present hierarchy of the department it is a section of finance


division headed by G.M (F) under him is Sr. Manager accounts with
the section deputy manager under him two assistants and two
superintendents.
This department performs the following main functions:
ü Preparation of Periodic and annual financial statements.
ü Book-Keeping
ü Every accounting transaction is posted to two set of records i.e.
General Ledger and Sub-Ledger accounts to keep the accounts
accurate and up to date. The general Ledger contains the control
accounts and the Sub Ledger shows the detailed description of
the General Ledger accounts.
ü Cost analysis
ü Co-ordination for external audit and internal Audit.
ü Dealing of Company income tax matters

The concerned departments maintain individual transactions of


kind but the consolidated totals are sent through journal vouchers
(JVs) to the account section then section is responsible to update
the major heads of all of accounts. In order to provide management
with accounting information and establish adequate control, a

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chart of account has been developed and classified for recording


these transactions

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FINNCIAL ANALYSIS

In order to measure the different aspects of firm’s activities, a firm


has to conduct financial analysis in which different ratios are
systematically used to interpret the financial statements. It is
necessary because without this analysis a firm’s existing strengths
and weaknesses as well as its historical performance could not be
determined.
Management must have to constantly ensure that the firm is using
its resources efficiently. Or its assets has been utilize in most
profitable way. Is the company sufficiently liquid to meet its current
obligation? Is the firm profitable enough to guarantee the interest
an principal payments on its long term debts? The financial
statements itself may not be able to provide the answer. So, a firm
has to perform a financial ratio analysis

Types of financial ratios

The most commonly use ratios are categorized into four ways.
1. Liquidity ratio
2. Debt ratio
3. Activities ratio
4. Profitability ratio

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Liquidity ratios

It tells us about the short-term solvency of a firm or it measures a


firm’s ability to meet its short-term obligations. These ratios have
great importance when a firm wants to get loan from bank or other
institution. Because if a firm which the credit worthiness of a firm
which create problems in obtaining loan or purchasing or credit.
This liquidity can be measure with different ratios such as:

Liquidity ratios

Current ratio for Dewan Farooque motors ltd is almost constant


over the years, which shows that its current assets are almost
equal to its current liabilities. It may cause some problems for the
company because its cash flows are mostly uncertain as it has,
huge investing in its current assets. If its quick-acid test ratio is
calculated the company’s liquidity reduced further. So Dewan
motors have to consider its inventory management, other wise it
may have some problems in obtaining credit or loan from financial
institution. Moreover Dewan Farooque is very efficient in managing
cash position and does not maintain extra cash as other firms
maintain.

Book value per share

The share value is also looking consistent over the years.


Shareholders are getting very good returns on their investment.
This consistency in crease shareholders’ confidence in the
company.

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Activity ratio

This ratio tells us how efficiently the firm is utilizing its assets
(fixed assets) to generate revenues. If a firm’s assets are based into
sales more quickly, its assets will e more efficient. As fixed assets
are more productive s huge investment in fixed assets will be
beneficial. This efficiency can be measured with different ratios
such as:
Sale to total assets/ sales to fixed assets
After year 2000, the sales of Dewan Farooque motors ltd, has
jumped by almost 236%. In that year the company must have huge
amount in its fixed assets. So the ratios also improve. In year2000,
mostly portion was invested in its current assets. So in the year
2002, sales to fixed assets ratio reduced which means firm increase
its fixed assets, which is positive sign as firm is in growth stage.
Moreover, Dewan Farooque has also low account receivables is also
reasonable. But the problem is with its inventory, which takes time
to e sold out.

Profitability ratios

It measures the overall record of management in producing profit. If


a firm does not earn an adequate profit, its long term survival will
be threatened. If profits are too low, investors will be reluctant to
provide new capital, which in turn, halt its growth. Profitability can
be measured with different ratios.

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Profitability ratios

Due to huge cost of sale, the gross profit margin is not too high, but
for newly established company; this ratio is reasonable in Dewan
Farooque. Gross profit margin increased from 5.45% to 8.77% from
year 2001 to 2002 which is due to increase in sales. In year 2000,
Dewan Farooque launched its new models due to which their sales
as well as cost of sale have increased in year 2001. Increase in cost
was greater than sales that are why profits goes into negative
figure. But if we compare it with industry averages such as Toyota,
Suzuki and like, which are doing their business for a long time.
Dewan Farooque looks better. In future it will be profitable and
investor earn a lot by purchasing its shares. Because Dewan
Farooque is at its growth stage.

Profitability ratios

As Dewan Farooque paying attractive salaries to its employees


that’s why administrative expenses have increased. But other
operative expenses are not too high this ratio is also reasonable on
it has increasing trend after year 2001. In year 2000, the
profitability ratios positive but it was for short term, if Dewan
Farooque did not invest in its fixed assets, its profitability may
decrease. As we have studied that invest in fixed assets is beneficial
in long term, so in long run its profit will improve.

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Profitability ratios

As Dewan Farooque has 77.87% debt equity ratio, it has to pay


huge interest. Dewan Farooque make its investment mostly with
debt. So in the year 2001, its operating profits goes negative. But in
year 2002, it has achieved its position into the market interest
expenses are 57 % of gross profit. But in future its sales will
increase and it will covers its interest expenses.

Profitability ratios

It also shows positive in year 2002. Dewan Farooque has to pay lot
of taxes due to this profitability have decreases. But now it has a
better position after year 2001, Dewan Farooque ’s profitability
ratios are improving and it is expected that in the future it will be
having increasing trend in its profitability.
As, Dewan Farooque has invested in its assets, this investment
consist is mostly consist of debt, it means they are using other
people’s money in their business. Their returns are positive.
Returns are not better but there are reasonable for a newly
established organization. There is excellent improvement in
company’s return as compare to previous year, which shows that
they are, utilizes their investment in a better way.
This ratio tells us that to what extent a company is using other
people’s money in its business. The higher the debt ratios, the
greater the long term insolvency may occur. This ratio can be
measure by

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Debt ratio=

Total debt/total assets

Year 2002 2738473000


3516853000
=77.87%

Year 2001 2710408000


3476846000
= 77.95%

Debt ratio is almost same in both the years. Dewan Farooque is


utilizing more debt as compare to its equity, which can cause
problems in future. It will face difficulties in obtaining more debt
because its insolvency increasing. Company has to consider its
long-term insolvency problem and should make more investment
through equity.
Debt equity ratio

= Total debt/total equity

year 2002 2738473/778380


= 352%

Year 2001 2710408/766438


= 354 %

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From above ratio, it seems that company is utilizing mostly debt.


As , it is its start up phase, that is why its debt equity ratio is too
high. Company has to increase its equity otherwise it may be face
difficulties in future.

Overall, the company is going very 3ell. In future, the company will
grow because its profitability ratios are increasing after2001. The
only problem is with its debt, as debt is increasing it may create
problems in obtaining more debt. Moreover, its short-term solvency
is also low due to huge inventory in its current assets. It ma also
cause problems in obtaining credit.

After all, the company is its growth phase, and investment in that
will be profitable. As it is currently achieving 14 % market share,
which is, better for and newly established firm.

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SWOT

STRENGTHS

• One of its strength is its location is near to Karachi. Most of


its vendors are located in Karachi. DFML get tires from
General Motor, which is also located at Port Qasim. So DFML
saves a lot of transportation cost.
• DFML has installed latest technology in its plant, which is
almost computerized. It is also strength for DFML.
• DFML has set up a paint system, which is considered no 3 in
Asia. As installed in 2000 the state of art Quadrant
Measuring Machine to maintain its consistence quality
checks and to insure quality standard..
• DFML a wide product range, which Includes 6vehicles. Which
satisfy each and every segment of market.
• DFML, Labour force is also its strength, which is efficient and
well trained. It is obvious from the fact that employee
turnover rate is only 3% and absenteeism rate is only 5%.
• Easy availability of genuine spare parts and its resale value
act as its strength.

WEAKNESSES

• DFML has not yet achieved appropriate economies of scale as


compared to its competitors. DFML and Pak Suzuki motors
are producing the same no of vehicles per year) but for DFML
incur huge cost. For DFML CKD kits account for 60% of their

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total Manufacturing cost, where as for Honda CKD kit


account for 70% CKD kits cost for DFML is on the average
about 10% higher than its competitor Pak Suzuki.
• DFML has total capacity of 20000 units. But at present they
are producing 8000 units, this shows that they are not fully
utilizing their capacity. It means that they are not amortizing
their fixed cost in best way, while major competitor having
capacity of 10000, but at present producing 7000 units.
• Their dealership network is weak. Company does not own this
dealership network. DFML has manufacturer-sponsored
retailer franchise systems. They license dealers to sell their
cars. So dealers often charge high price DFML.
• According to DFML sources, all major decisions are made in
Korea by the holding company, they send instruction about
their decisions in Pakistan and this process delays the policy
making at corporate level by the top management.

OPPORTUNITIES

• Political stability in Afghanistan will increase demand for


commercial vehicles in the Central Asian States. So this is an
opportunity for them to export the commercial vehicles as
well as passenger cars to Central Asian Republics, for the
Central Asian republics, Karachi being their nearest port the
opening of trade routes in these countries, will lead to an
inevitable growth in the transport sector.

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• The completion of the Lahore/ Islamabad motorway,


expansion of the road network and reduction in the rail links
will cause expansion in the automobiles market in the future.
• According to Manager Imports Mr. Farhan Asrar from DFML.
There is an opportunity to expand market of Shehzore in
Nepal and Bhutan, if India gives way through its trade root to
Pakistan by an agreement.
• According to sources from DFML, if engineering board of
Pakistan makes the industry specific deletion policy this will
provide an opportunity for the development of vendor
industry. At present, there are 180 vendors in the vendors
industry, if they remain and increase in vendor industry, this
will enforce localization of cars.
THREATS

• The government tax policies are threat to DFML. DFML have


to pay 6.25% capital value added tax (cvt). Apart from this,
they have to pay 35% important duty on CKD kits (the main
component of cars), that is imported from Korea. That has
increased its costs.
• The law and order situation in the country especially in
Karachi is threat to DFML. Which has caused diminishing of
companies production and demand in the country in demand
of locally manufactured cars.
• The political instability is also a threat to DFML as well as
overall automobiles industry. Due to political instability
policies about tax and import duties are inconsistent.

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• The 1992’s taxi scheme has acted and is still acting as a


threat to DFML. During 1990 Government imported sixty
thousands" yellow cabs" from Korea, which resulted in
decrease in demand of DFML vehicles. Still three thousand
yellow cabs are awaiting for sale in the market.
• The authorities in Indus Motors consider Suzuki, Toyota car
as a threat to DFML cars.
• Suzuki 800cc and 1000cc cars are substitute for DFML car.
The reason is that people are becoming more price conscious
and want economical car, which give low fuel consumption
that, is why Suzuki demand in gradually increasing.
• The increasing inflation is acting as a threat to DFML.
Presently inflation rate is 9% (according to official sources)
and 13% (according to non official sources) which has
decreased the purchasing power of people and also decreased
the demand of Toyota vehicles.
• Exchange rate fluctuation is also a threat to DFML
Devaluation of Pak rupee has acted like a threat to the
company.
• DFML imports CKD kits from Korea, when devaluation in the
country takes place, it increases the CKD cost.
• When Pakistan made its first atomic explosion on May 28,
1998, the after math of this was, G 7 imposed sanctions on
Pakistan. Due to this the monetary base of Pakistan
decreased. It adversely affected the whole industry of Pakistan
and in turn demands for DFML.
• The severe competitions in the upper segment market are also
a threat to DFML. The analysts have projected that the

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market for larger sized engine cars will grow at a rate of 5%


which is less than 9% for small sized engine market; this slow
growth puts dampening effect on DFML performance, giving
some competitive disadvantage.

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