By Moonis Ahmed
KARACHI: One sector in Pakistan that has recovered sharply from the economic downturn is Auto sector, as car manufacturers after facing tough times, have posted recent recovery; thanks to gradual restoration of consumer confidence as local economy is slowly recovering.
Compared to 4Q2008, where all car assemblers posted losses (except for Indus), 4Q2009 was far better in terms of profitability, as total earnings of the sector stood at Rs 490 million compared to profit of Rs 1 million last year. The turnaround in earnings is primarily caused by 27 percent rise in sales to Rs 23.7 billion driven by 34 percent growth in car sales, Muhammad Sohail analyst at Topline Research said.
Gross margin of the sector stood at 4 percent compared to gross losses last year. Previous year gross margins were affected, as car assemblers were hesitant to increase car prices amid downturn in economy and weak consumer confidence. However, car prices are relatively higher by an average of 3 percent compared to last year despite 5 percent cut in excise duty (on cars above 850cc). Thus, companies some how passed on the impact of steel prices (up 9 percent in YoY) and rupee devaluation (up 9 percent).
Honda’s (9 percent share in car sales) earnings remained in red due to higher financial cost and lesser margins. Pak Suzuki on the other hand, posted rebound in earnings to Rs 43 million versus loss of Rs 12 million last year. Though, gross margins stood positive at 2 percent compared to gross loss last year, they are still lower than historical trend where average margins were 9-12 percent in last 5 years.
Indus Motors was the star performer with 429 percent growth in earnings in 4Q2009 led by higher volumetric sales (up 16 percent), better gross margins (up 425bps) and higher other income (up 240 percent).