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 Korea 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
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.
In political and legal forces, poor law and order situation, especially in Karachi Pakistan
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.
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 Karachi to import clothing and other multifarious commodities, which were then sold all over India
In 1947, the Dewan family migrated to Pakistan Karachi
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
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.
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 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.
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 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.
- 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.
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
- 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.
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 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, 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
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 Korea
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
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
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
- Dewan Mushtaq Textile Mills Limited
Automobile Manufacturing
Dewan Farooque Motors Ltd.
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 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 Pakistan
The Company has entered into separate technical license /collaboration agreements with Hyundai Motor Company, Korea and KIA Motors Corporation, Korea Pakistan
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 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 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.
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 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
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.
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
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 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 cc | 1000 to 1200 | 1300 & above | Van | Pickup | 4X4 | Capacity | ||
| EXISTING | |||||||||
| | | | O | | O | | 20000 | ||
| Suzuki | O | O | O | O | O | O | 50000 | ||
| Honda | | | O | | | | 10000 | ||
| Nissan | | | O | | | | 12000 | ||
| DFML | | O | | | O | | 10000 | ||
| PLANNED BRANDS | |||||||||
| Ssang Young | | | | | | O | 3500 | ||
| Total Capacity | 105,500 | ||||||||
| MARKET | 47000 | ||||||||
| Passenger Car | 340000 | | |||||||
| 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.
Dewan Farooque Motors Limited was incorporated in Pakistan Pakistan
The Company has entered into separate technical license /collaboration agreements with Hyundai Motor Company, Korea and KIA Motors Corporation, Korea 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 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 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.
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).
(The writer is Head of Research. Switch Securities (Pvt.) Limited, (a wholly owned subsidiary of Islamic Investment Bank Limited).
VOLUME & SIZE
THE PROJECT
The aim of joint venture is progressive manufacture of Toyota
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
The necessary civil work for production facilities comprise of:
v Paint Shop
v Assembly Shop
v Welding Shop
v Compressor Transformer Room
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 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 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 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.
DFML'S product range:
DFML is the only company manufacturing Hyundai and Kia vehicles in the same plant outside the parent country, Korea
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 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.
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
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.
It is the first Sports Utility Vehicle (SUV) to be assembled in Pakistan 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 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
The plant is first automobile manufacturing unit in Pakistan Pakistan
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 most technologically advanced name in the world for such equipment, are being used to paint the vehicle bodies for the first time in Pakistan Pakistan
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
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 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.
Support And Service
Dewan Farooque Motors a progressive automobile company with diversified range of vehicles catering all the transportation needs of Pakistan
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.
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
- Technical Service Trainings at
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.
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 Codes: | Display all DTC for the selected ECM and erase DTC. |
| Current Data: | Display Current Sensor Values. |
| Flight Record: | Record Current Sensor Values up to 8 items at once. |
| 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 function: | Parts Analysis (Engine/Auto Transaxle), Oscilloscope, Multi Meter Actuator Driving and Sensor Simulation. |
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
¶ Computer equipment
¶ Fire fighting equipment, etc.
All local procured machinery was brand new as, well.
MANAGEMENT
BOARD OF DIRECTORS
Chairman Mr. Dewan Zia ur
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
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
These are:
¶ Sales
¶ Services
¶ Spare parts
In Pakistan
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 Pakistan 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
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.
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 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
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 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
Also, political instability in Afghanistan Karachi
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.
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, 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.
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
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
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
This innovated concert revolves around the "Hyundai & Kia Dealership", which Encompasses three critical areas; sales, services and spare parts all under one roof.
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.
AFTER SALE
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
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.
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 Karachi
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
Finance Division
This division is further divided into these sections
Å Book keeping section
Å Payable section
Å Cash section
Å Budgeting section
Å Sales section
Accounts Division
This division is further divided into these sections
Å Import section
Å Fixed asset accounting section
Å Inventory section
Å 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.
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
1 Establishment of L/Cs
1 Maintenance of L/C ledger and import license register and preparation of schedules.
1 Retirement and adjustment of bank documents and their dispatch to Karachi
1 Arranging shipping guarantees
1 Checking bill of entries and submission to State Bank of Pakistan
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
1 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
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 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).
RESTRICTIONS FOR L/C AND SHIPPING
The govt. of Pakistan
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 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 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
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 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.
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.
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.
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
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.
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.
1 Temporary
1 Permanent
1 Partial
1 Permanent total.
Accidental death benefit (double compensation).
For assets/plants types of policies are
1 Fire policy
1 Machinery breakdown policy
1 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
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 chart of account has been developed and classified for recording these transactions
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
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.
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.
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.
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
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 %
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.
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 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.
· 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.
· 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 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.
References:
www.dewangroup.com.pk/
en.wikipedia.org/wiki/Dewan_Mushtaq_Group
www.linkedin.com/companies/dewan-mushtaq-group
