Loads Limited (LOADS): A Promising Turnaround Story

Introduction

Loads Limited (LOADS) is back in the spotlight with a strong recovery outlook. With a projected fair value of PKR 29.17 per share by December 2025, the stock offers an upside potential of 55% from its current price of PKR 18.80. This analysis explores how macroeconomic improvements, strategic decisions, and operational efficiencies are setting the company up for long-term success.

The Macro Backdrop: Auto Sector Recovery

One of the key drivers behind Loads Limited’s resurgence is the anticipated recovery in the Pakistani automobile sector. As inflation declines, the State Bank of Pakistan (SBP) is expected to ease monetary policy, making car financing more affordable. Since LOADS is a key supplier of exhaust systems and sheet metal components to local automakers, higher auto sales will directly translate into stronger revenues for the company.

Expanding Profit Margins

A major turnaround in LOADS’ financials comes from its ability to renegotiate pricing in its key product segments. The company has successfully expanded its gross margins from 13% to 26%, thanks to:

• Improved pricing power in exhaust system and sheet metal segments
• Better cost control measures
• An expected decline in interest rates, reducing finance costs

Improving Cash Flows and Debt Reduction

After suffering losses in previous years, LOADS has returned to profitability. A stronger auto sector will further support cash flow generation. Additionally, the company is exploring the outright sale of its subsidiary, Hi-Tech Alloy Wheels, which could bring in PKR 3 billion. If completed, this sale will:

• Strengthen LOADS’ balance sheet
• Provide growth capital
• Reduce debt burdens, potentially allowing the company to resume dividend payments

Monopoly in Exhaust Systems: A Key Advantage

LOADS enjoys a unique position as Pakistan’s only tier-1 exhaust system manufacturer. This gives the company a competitive edge, ensuring steady demand from major automakers like Pak Suzuki, Honda Atlas, Toyota Indus, and Hinopak.

Expansion and Growth Potential

Back in 2016, LOADS undertook a massive expansion project using IPO proceeds. This increased its manufacturing capacity significantly across various product segments:

• Exhaust Systems: Increased from 150,000 to 275,000 units (83% growth)
• Radiator Cores: Increased from 80,000 to 175,000 units (119% growth)
• Sheet Metal Components: Increased from 3.1 million to 6.5 million units (109% growth)

Challenges and Risks

While the outlook is promising, there are some risks to consider:

1. Reliance on Pak Suzuki: Over 50% of LOADS’ revenue comes from one customer, which could be a vulnerability.
2. New Entrants in Auto Industry: Recent players like Hyundai, KIA, and Haval have gained market share, which could reduce demand for LOADS’ parts.
3. High Debt Levels: Although declining, the company still carries a debt burden that needs careful management.
4. Potential Dilution: A director’s loan of PKR 700 million could be converted into equity, diluting existing shareholders’ stakes.

Future Outlook: Why LOADS is Poised for Growth

Despite past challenges, LOADS is now on a path to strong financial performance. Several tailwinds support this bullish outlook:

• Auto Sales Growth: As economic conditions improve, vehicle sales in Pakistan are expected to rise to new highs.
• Sustained Margin Expansion: LOADS’ recent pricing negotiations should keep its margins healthy in the coming years.
• Cash Flow Improvement: The company’s improving cash conversion cycle suggests that financial stability is returning.

Conclusion

LOADS is emerging as a compelling investment in Pakistan’s auto sector. With a monopoly in exhaust systems, expanding margins, and a recovering automobile industry, the company has positioned itself for sustained growth. If the planned sale of Hi-Tech Alloy Wheels goes through, it could further accelerate the company’s turnaround. For investors looking for value and growth, LOADS offers an attractive opportunity.