Millat Tractors has informed the Pakistan Stock Exchange (PSX) that it will permanently cease production on January 6th. Reduced demand for tractors and the company’s own cash flow problems were mentioned by Millat as the rationale for its decision.
Millat’s decision is based on the fact that the corporation would observe two lengthy periods of non-production in 2022. Previously, Millat had suspended output from March 7 to March 21 and August 31 to September 23. On December 16, the corporation also announced Friday to be a non-production day in perpetuity. Millat recorded a total of 44 non-production calendar days in 2022.
Millat’s decision was based on the combination of demand destruction and a liquidity issue. Throughout 2022, both of the aforementioned facts have been thoroughly documented.
Millat is seeing the worst start to a fiscal year in terms of demand destruction in the prior five years. According to data published by the Pakistan Automotive Manufacturers Association, five-month sales are currently at 5,800 units. This is a reduction of 58% compared to the 13,954 units sold during the same period last year.
In a previous chat, Raheel Asghar, CEO of Millat Tractors, told Profit, “Both Millat Tractors and our competitor have experienced a decline in sales” (Al-Ghazi). There are numerous market-influencing elements. The 2022 flash floods that ravaged Sindh, Balochistan, and lower Punjab and adversely affected the purchasing power of farmers are the most obvious.
Asghar is similarly negative about the future year, telling Profit, “I believe it will be a matter of survival.” It will not be a prosperous year for us.”
Regarding cash flow constraints, the problem is presumably the outcome of a confluence of variables. Beyond the immediate decline in sales, the most obvious cause is the ongoing sales tax dispute that Millat and other tractor manufacturers have had with the government for the majority of the last year. Asghar had already described the situation to Profit in this manner. Previously, the government exempted tractors from sales tax. The government was able to reimburse us for our input expenses. We will not obtain this reimbursement at this time, and as a result, we had to increase our pricing.”
In addition to the aforementioned two problems, Millat is currently engaged in a legal dispute with the Federal Tax Ombudsman’s Office, resulting in cash flow difficulties.
There is no doubt that Millat will restart his athletic career. It shall. The crucial question is when. Millat had previously informed the PSX of such a production stoppage in March, when it observed 17 calendar days of non-production.
Its March 4 notification, similar to the current one, stated that it will cease operations permanently. The company subsequently sent a follow-up notification on March 21 announcing that activities will resume the next day. Assuming a particular date for Millat’s return to production would be erroneous; nonetheless, 17 calendar days is a reasonable estimate based on historical experience.
It is unlikely that Millat will prolong this closure for an extended period of time, as its nearest competitor Al-Ghazi will not observe such a halt. Millat’s final stretch of non-production days from August 31 to September 23 allowed Al-Ghazi to surpass Millat in September sales volume. Millat is unlikely to desire a recurrence of this circumstance for several months.
In 2022, both the tractor sector and the entire automobile market struggled. Thus, Millat’s choice is understandable. Asghar believes the market will improve in 2023, however. He remarked, “I believe next year’s demand will increase modestly. There will not be a complete rebound, but there should be some improvement in the market, especially as we approach March because that is when the season begins.