[h=1]Atlas Honda Limited[/h]
September 17, 2013
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Atlas Autos Limited was formed in 1962 as a result of technical collaboration between Honda Motors, Japan and Atlas Group (Shirazi Investments Pvt Limited). In 1965, the Company became the first-two wheeler manufacturer to be listed on the Karachi Stock Exchange after it commenced commercial production with an annual capacity of 6,000 units.
After the loss of its East Pakistan arm in the 1971 war, the Company heavily invested in localisation of imported components and achieved production of 18,000 units by 1979. In 1988, Honda Motor Company, Japan acquired a 10% stake in Atlas Autos Limited and, after its merger with Panjdyara Limited (another Shirazi Group subsidiary) in 1991, the Company took its present name of Atlas Honda Limited (ATLH) Pakistan.
THE GROUP Today, Atlas is a diversified group dealing in engineering, power generation, and financial services and trading. It consists of seven public limited companies, of which four are quoted on the Stock Exchanges in Pakistan, and seven private limited companies. Atlas shareholders' equity now stands at 30 billion rupees; assets have increased to 80 billion rupees; personnel strength to 7,500 and annual sales have crossed 100 billion rupees. Its associated companies include Atlas Battery, Atlas Engineering, and Honda Atlas Cars, among others.
DEALERSHIP NETWORK To expand its reach to the customers, the Company has established a wide network of 1,600 sales service and spare-parts dealers. In addition, the Company has also set up warranty and training centers in Karachi and Lahore.
The Company currently sells CD-70, Pridor, CG-125 and Deluxe under its premium brand name Honda. Apart from catering to the local market, the Company also exports its products to Bangladesh and Afghanistan.
In order to achieve self-sufficiency in its motorcycle manufacturing operations, Atlas group recently signed a joint venture with DENSO Corporation with an aim to produce superior quality motorcycle parts in the country. The new company, Atlas Hi-tech, plans to commence operations from October CY13.
MARKET SHARE The Company maintains a market share of more than 40 percent in the two-wheeler category, and is recognised as a market leader in terms of brand recognition, high quality, technological innovation and country wide dealership network. However, Japanese manufacturers (Atlas Honda and Pak Suzuki) have lost market share in recent years, from 80 percent in 1999-2000 to 46 percent in 2009-2010.
PERFORMANCE REVIEW FY12-FY13 Company launched a new model in 100CC category, "Pridor". Test phase results indicate that the model has been well-received by the market.
The Company also launched EURO-II compliant model of CG 125, which registered a 23 percent growth over its previous model. CG-125 has found a niche among the younger population in the premium segment.
PROFITABILITY ATLH witnessed a YoY unit sales growth of five percent in the Financial Year ending March 31 2013. This translated into revenue and gross profit growth of 11 and 33 percent, respectively. Operating and net profit margin remained stable at about five and three percent, respectively.
In response to high competition in the traditional CD-70 category, the Company targeted a better sales-mix strategy by strengthening its position in the premium segment. As a result, it was successful in maintaining its CAGR of 15 percent over a period of last six years.
Sales and marketing expenses grew by massive 25 percent as a result of aggressive marketing and promotion of new products. SG&A expenses form major chunk of company's operating expenses, despite efforts at cost-cutting.
LIQUIDITY The Company became debt-free in FY2011 and has since maintained zero borrowing cost. Its free cash flow from operations stood at Rs 2.6 billion, more than 1.25 times of its net income. Its payout ratio has inched forward by three percent to 52 percent, compared to last year. The Company's net working capital also registered a growth of 37 percent with an improved current ratio.
POSITION IN 1Q FY13-FY14 AND FUTURE PROSPECTS Profitability position of the Company remained sound with a 28 percent growth in gross profit and 40 percent growth in the bottom line. However, continuing the trend of FY 2012-2013, growth in sales volume was mostly witnessed in urban areas, with depressed sales in rural areas due to reduced liquidity of the agriculture sector.
OPPORTUNITIES Given increasing petrol and CNG prices, load management of CNG and stalled auto financing, low-end consumers are more likely to switch from cars to motorcycles. Given the healthy outlook for the segment, Atlas Honda (ATLH) is reportedly considering investing $50mn to increase motorcycle capacity to one million units per year from the current capacity of 750,000 units per year. In FY2011, ATLH invested $35 million to increase capacity by 25 percent.
RISKS AND THREATS Increasing competition in the high volume 70 CC segment, eroding purchasing power of the rural areas, low barriers to entry for new entrants, depreciation of Pak rupee against US dollar, and smuggled auto-parts pose challenges to ATLH market position in the future.
