Diversified Business Cushions The Blow For GB Auto
Egypt's largest automotive firm, Ghabbour Auto (GB Auto), posted a 72% year-on-year (y-o-y) decline in net profit in Q213, largely as a result of the depreciating Egyptian pound. The company's passenger car sales division has also struggled with the tough operating environment in Egypt, which has seen a number of carmakers temporarily closing their operations. Nevertheless, GB Auto's diversified business means that the company is still profitable and its revenues fell just 0.5% y-o-y , while it is also benefiting from its tie-up with Geely Automobile , in line with BMI 's view that small affordable cars are the most attractive right now (see 'Scope For Budget Brands As Pound Weakens', February 4) .
The Geely brand has captured a market share of 5.5% in Egypt in H113 since first signing a distribution agreement with GB Auto in February 2012. At present, the Egyptian firm only assembles and distributes the Geely Emgrand 7, but this will now be joined by the SC5 as GB Auto looks to replace a contract with Hyundai Motor , which ends in 2013, and build on the momentum achieved with the Chinese brand.
|Sharing The Load|
|GB Auto Revenue Contributions By Business Division, Q212 (LHS) And Q213 (RHS)|
In addition to expanding its partners, GB Auto has also benefitted from its range of other businesses. In Q213, the contribution of total revenue from its financi ng division more than doubled to 5.0%, compared with 2.4% in Q212, while its contribution to gross profit also surged from 5.6% to 9.7%. Tyre distribution has also been a lifeline for GB Auto, increasing its revenue by 66.9% y-o-y in Q213 and its gross profit by 60.2% y-o-y.
The company will look to capitalise further on the diversification trend, as it commenced sales in Algeria and Libya in August. BMI cautions that Libya brings its own risks in terms of security and the business environment, as illegal second-hand imports are rife. However, GB Auto is looking to replicate its success with the Geely brand and also its tyre business as it will distribute the Triangle brand. It will also sell Great Wall pick-up trucks.
We are more upbeat regarding Algeria, however, which BMI considers one of the best North African prospects for autos. The only potential threat to our upbeat forecast for sales growth of 15% in 2013 is the fact that private consumption may fall slightly over the year, as higher spending on public sector wages is scaled back by the government. This may act as a brake on demand for new vehicles, although growth of 14.7% y-o-y in H113 supports our forecast.