Sazgar to invest Rs22bn in capacity expansion despite Pakistan auto policy delay

Sazgar Engineering Works Ltd. plans to proceed with a Rs22 billion vehicle capacity expansion regardless of the outcome of Pakistan’s delayed new auto policy, while preparing to expand its lineup of hybrid, plug-in hybrid and electric vehicles, company management said on Saturday.

The expansion, part of a broader Rs32 billion investment plan, is expected to increase Sazgar’s production capacity to about 180 vehicles a day from roughly 100 currently, management said during a corporate briefing on its financial performance and outlook.

The expanded facility is expected to become operational within nine to 10 months. About Rs17 billion of the project will be financed through debt, with the remainder funded through equity and internal reserves, management said.

Topline Securities said the expansion and planned new-energy vehicle launches give Sazgar flexibility as Pakistan’s auto market shifts towards alternative powertrains.

“The company remains positioned to respond to changes in demand across ICE, HEV, PHEV and EV categories, with the eventual product mix likely to be determined by consumer demand and government policy,” the brokerage said in its assessment of the briefing.

Sazgar said concessionary customs duties on new-energy vehicle parts remain in place despite the expiry of the 2021-26 auto policy. Management cited duties of 4% on EV-related parts and 3% on plug-in hybrid electric vehicle parts.

The company said it would localize production through a combination of in-house manufacturing and third-party suppliers, broadly following the approach used by other automakers. It did not disclose specific localization targets.

Sazgar currently has 32 active 3S dealerships nationwide and expects another five to six outlets to open in the near term, management said.

FY26 profit rises 44%

Sazgar reported a 44% increase in profit after tax to Rs23.6 billion in fiscal 2026, while revenue rose about 76% to Rs191.7 billion. Earnings per share increased to Rs390.51 from Rs270.26 a year earlier, according to company financial disclosures.

Management attributed the growth to higher sales of GWM-Haval and GWM Tank 500 vehicles.

Gross margin, however, fell to 24.2% in FY26 from 29.1% a year earlier. The company attributed the decline to changes in product mix, with fourth-quarter gross margin falling to about 22.3% from 25.4% in the first nine months.

Iqbal Ismail Securities said the lower margins pointed to a normalization of profitability as Sazgar expands its product portfolio and prepares for greater competition in Pakistan’s auto market.

“The company is preparing for gross margins to converge toward industry averages as its product mix evolves,” the brokerage said in its assessment.

Auto policy delay weighs on sales

Management said the delay in announcing the new auto policy had affected near-term sales and pushed back the expansion timeline. However, Sazgar continues to book and produce vehicles and expects demand to improve once uncertainty over vehicle classification, taxation and pricing is resolved.

The company said it was currently absorbing the higher GST burden rather than immediately passing it on to customers.

Management said the prevailing GST rate is 18% for HEVs and PHEVs and 25% for internal-combustion-engine vehicles. Sazgar has not raised prices following the GST increase, citing expectations that the new auto policy will provide greater clarity and potentially offer more supportive taxation.

Prices remain subject to the taxes applicable at the time of delivery, the company said.

Iqbal Ismail Securities said Sazgar’s decision to hold prices despite higher taxation could support demand in the near term, although final pricing would depend on the government’s policy framework.

ARCFOX, Cannon Alpha launches

Sazgar is preparing to introduce ARCFOX, a semi-premium new-energy vehicle brand owned by Chinese automaker BAIC.

Management said its partnership with BAIC dates back to 2018 and that it was preparing to showcase the ARCFOX T1 and T5 in Pakistan.

Whether ARCFOX vehicles will initially be imported as completely built units or assembled locally as completely knocked-down units will depend on the new auto policy, management said.

A policy favouring CBU imports would support an initial CBU launch, while favourable CKD treatment would accelerate local assembly.

Sazgar said its expanded common assembly and paint facilities can accommodate CKD models, although model-specific welding arrangements may be required.

The company also expects to launch the GWM Cannon Alpha shortly at what management described as a competitive price. Preparations for local CKD assembly have been completed.

Management said it expects government policy to support plug-in hybrid vehicles and will align future launches with that expectation.

Inventory rises, hybrid deliveries resume

Sazgar said its inventory level is about 50% above its recent average, but the increase is not linked to requirements for any specific new model.

The company also confirmed that deliveries of hybrid and plug-in hybrid vehicles have resumed.

Management said its recent decision not to disclose monthly production and sales figures was due to operational timing and that such disclosure is optional. It acknowledged investor suggestions to resume regular reporting.

Sazgar’s property, plant and equipment increased to Rs23 billion in FY26, primarily due to investment in four-wheeler manufacturing facilities and land acquisitions.

The company said the capacity expansion would proceed irrespective of the final shape of the new auto policy, allowing it to accommodate different vehicle technologies and categories.

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