By Mushfiq Ahmad
KARACHI: The profitability of Indus Motors, Pak Suzuki and Honda Atlas deteriorated substantially due to higher costs and reduced advanced payments in the last financial year, said Atif Malik, an analyst at JS Global Markets.
The three major car assemblers of the country have announced their results for the quarter ending June 30, 2007. These three companies occupy 98 percent of share in locally manufactured passenger cars.
The total earnings of three major companies stood at Rs 5.7 bn as compared to Rs 6.8 bn in FY06, showing a decline of 14 percent as compared to a robust positive growth of 101 percent in FY06. Net sales of the industry stood at Rs 107 bn in FY07 against Rs 101 billion in FY06, showing a moderate growth of 5 percent. This growth in sales is backed by a 13 percent rise in sales. This growth in volumetric sales, however, is dwarfed by the 23.9 percent growth in last fiscal year.
Sales growth, however, could not seep down to the bottom-line profitability of the industry as gross margins depressed by 109 basis points (bps) from 10.8 percent in FY06 to 9.7 percent in FY07. “This depression was an industry-wide phenomenon as cost for raw materials, especially steel, surged during the year,” said Malik.
Moreover, other income of the sector posted a decline of 17 percent to Rs 2 bn from Rs 2.4 bn in FY06. It happened because cash balances fell due to less advance payments, a result of lower delivery period in FY07. This reduction in other income also played a role in the reduced profitability of the sector in FY07.
In terms of volumetric sales, the two market giants Pak Suzuki and Indus Motor showed a growth of 35 percent and 19 percent, respectively. This is reflected in FY07 revenue growth of 18 percent for Pak Suzuki and 11 percent for Indus Motors. However, this significant growth could not be trickled down to their bottom-line (Pak Suzuki FY07 profits were down by 6 percent and Indus Motors FY07 profits were up by only 4 percent) as the increase in cost of sales and distribution expenses substantially weighed down the earnings growth for the year.
FY07 proved to be non-event year for Honda Cars, the third largest car assembler in Pakistan as the company’s high premium ‘Civic’ brand faced tough market competition. The new model of Civic was not able to penetrate well into the market because of higher prices. Moreover, cheap imported cars also dampened the sales for Honda Civic.
During fourth quarter of FY07, the combined profits of the three companies posted a decline of 8 percent to Rs 2.13 bn as against Rs 2.32 bn during the same period last year, said a research report of First Capital Equities.