Sazgar Engineering FY25 profit doubles to Rs16.3bn

Sazgar Engineering Works Limited (SAZEW) posted FY25 profit of Rs16.3 billion, with earnings per share at Rs270.22, more than doubling from last year but still missing industry expectations.

Sazgar Engineering Works Limited (SAZEW) announced its financial results for fiscal year 2025 (FY25) on September 1, reporting a profit of Rs16.3 billion, an increase of 106% year-on-year, translating into earnings per share (EPS) of Rs270.22. Despite the strong annual growth, the performance came in below market expectations due to weaker gross margins in the final quarter.

During the fourth quarter of FY25, the company posted a profit of Rs3.5 billion, or EPS of Rs57.58, which was broadly flat compared with the same period last year but marked a steep decline of 44% compared with the preceding quarter. Analysts noted that the weaker-than-anticipated gross margin weighed on quarterly profitability. Sazgar Dominates SUV Market with HAVAL

Gross margins dropped to 25.1% in the quarter, down from 29.1% in 4QFY24 and 32.6% in 3QFY25. For the full fiscal year, gross margins averaged 29.1%, slightly higher than the 27.1% recorded in FY24. The company has yet to release detailed accounts explaining the sharp quarterly decline.

Net Sales

Net sales for the fourth quarter stood at Rs27.3 billion, representing an 18% increase year-on-year but a decline of 26% on a sequential basis. The sales trend was shaped by fluctuations in both four-wheeler and three-wheeler volumes. Four-wheeler sales rose 28% year-on-year to 2,817 units but declined 24% from the previous quarter.

Similarly, three-wheeler volumes climbed 25% from a year earlier to 6,258 units, though they also fell 24% compared with the third quarter. The preceding quarter’s figures were boosted by accumulated sales from December and January, which were booked in January, skewing the comparison.

Operating costs reflected mixed trends. Distribution expenses increased 16% year-on-year but fell 15% quarter-on-quarter. Administrative and other expenses declined by 5% and 7% year-on-year, respectively, and registered sharper sequential declines of 40% and 44%. Other income stood at Rs320 million in 4QFY25, representing a 33% fall from last year but a modest 7% improvement over the prior quarter.

The company declared a final dividend of Rs20 per share alongside the results, taking the total payout for FY25 to Rs52 per share, equivalent to an 18% payout ratio. The effective tax rate for 4QFY25 stood at 39%, in line with both the same period last year and the third quarter, keeping the full-year rate steady at 39%.

In a strategic move, the Board of Directors announced that the company will discontinue its Home Appliances division effective September 1, 2025. The decision reflects a focus on consolidating resources into core automotive segments, which management considers more profitable. According to the company, the closure will not affect overall net sales or profitability.

Despite the robust annual growth, analysts pointed out that the weaker-than-expected fourth-quarter performance could weigh on investor sentiment. The decline in gross margins, in particular, has raised questions about input cost pressures and pricing dynamics in the auto sector, which has been facing volatility in raw material prices and fluctuating demand patterns.

Sazgar has been an established player in Pakistan’s automotive market, particularly in three-wheeler and four-wheeler segments. Its strong sales growth in FY25, driven largely by higher unit volumes, reflects resilience in a sector often constrained by economic slowdowns, import restrictions, and consumer affordability challenges. However, the sharp quarter-on-quarter decline highlights the cyclical nature of auto sales and the impact of timing-related factors.

With SAZEW currently trading at forward price-to-earnings ratios of 5.4x for FY26E and 7.2x for FY27F, analysts believe the valuation remains attractive compared to regional auto peers. Market watchers will be looking for clarity on the reasons behind the fourth-quarter margin squeeze and management’s strategy to sustain profitability.

The company’s decision to streamline operations by discontinuing its Home Appliances division suggests a sharper focus on automotive growth, where it has maintained strong volume momentum. Industry experts expect that the move could help SAZEW allocate more capital and resources to its core segments, positioning it for sustained expansion despite near-term earnings volatility.

As investors assess the outlook, the company’s FY25 results underscore both the opportunities and risks facing Pakistan’s auto sector. Sazgar Engineering’s ability to maintain sales growth while managing margin pressures will be a critical factor in determining whether the stock can deliver on its forward valuation potential.