Dewaan motors back on its feet as new players bring in $800m investments

News Analysis |

Dewan Farooque Motors Limited (DFML) is gearing up to resume vehicle production from February 2018 as it has received approval for its Brownfield plant from the Engineering Development Board (EDB), according to a stock exchange notice the company sent on 19th January 2018.

Initially, the company will re-launch its popular Shehzore’s one-ton single rear-wheel truck. Later, it will roll out passenger cars and a Sports Utility Vehicle (SUV). The company’s share price hit the upper limit during trading on Friday, ending at Rs. 38.62, up Rs. 1.83 from its last closing price of Rs. 36.79. Industry officials say the company’s focus is on its one-ton truck amid high demand of commercial vehicles in the country.

Kia and Hyundai have already started working on their assembly plants while Volkswagen and Renault have announced plans to set up plants in the country.

In mid-2016, the company applied for resuming vehicle production by sending its application to the Board of Investment (BoI) and the EDB. Later, in September 2016 it announced that it would start production of vehicles by the end of October 2016.

Dewan Farooque Motors is returning to the arena with a toll manufacturing agreement with Daehan-Dewan Motor Company Private Limited; a joint venture between Dewan Yousuf Companies and the Laos-based Kolao Group. DFML’s plant has remained idle for a long time, but its share price has seen an extraordinary run in recent months.

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In just one month, DFML’s share price has witnessed an increase of 52.2%, going up to Rs. 38.62 from Rs. 25.37 on December 19, 2017. A similar situation was also seen in mid-2016 when the company’s share price witnessed a 100% return in just five months. After noticing the activity, the Securities and Exchange Commission of Pakistan (SECP) issued a notice to the company in May 2016, asking it to explain the cause behind the surge.

Since the announcement of the five-year auto policy in March 2016, auto giants from South Korea, Germany and France have been quickly drawn into the Pakistan market.

Later, DFML issued a notice to the Pakistan Stock Exchange (PSX), saying that the company has nothing to do with the share price movement. The government has given new projects of five vehicle manufacturing companies including Hyundai, Kia, Regal Automobiles, Khalid Mushtaq Motors and United Motors Greenfield investment status under the Automotive Development Policy 2016-21, which is expected to bring investments of over $800 million to Pakistan.

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According to the Engineering Development Board (EDB), which works under the Ministry of Industries and Production, it is facilitating fresh investments in the auto sector from new companies including joint ventures with foreign players. It is anticipated that with the revival of Dewan Farooque Motors, which has been given the go-ahead to manufacture vehicles under the new policy, Shehzore pick-up trucks will be re-launched shortly whereas Daehan Dewan Motor will manufacture Ssangyong Tivoli SUV with an investment of $145 million.

After noticing the activity, the Securities and Exchange Commission of Pakistan (SECP) issued a notice to the company in May 2016, asking it to explain the cause behind the surge.

These are in addition to their quest for the launch of BMW in Pakistan. It has been learnt that the case of Ghandhara Nissan is also under consideration, which is planning to launch Datsun in Pakistan with an investment of around $41 million.

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Since the announcement of the five-year auto policy in March 2016, auto giants from South Korea, Germany and France have been quickly drawn into the Pakistan market. Kia and Hyundai have already started working on their assembly plants while Volkswagen and Renault have announced plans to set up plants in the country.

Analysts say the industry will finally see tough competition when companies like Hyundai, Volkswagen, Kia and Renault will start production from 2019. According to the EDB, it has already facilitated investments amounting to $531 million and the total will cross $800 million after more proposals.