Automobile Assemblers: PAK SUZUKI MOTOR COMPANY LIMITED - Year Ended 31-12-03
Pak Suzuki had a great year with sales jumping 68% to nearly Rs 18.5 billion (from 11 billion in 2002). Margins improved to an even greater extent and the bottom line at Rs 31.96 (17.30) was up as much as 85% over the year before.
Dividend remained unchanged from 2002 at Rs 3.00, though. Some export sales of vehicles and parts have been achieved. Demand for its products is expected to remain strong in 2004. This silver lining encloses a cloud, however.
The decision of the Government to allow import of reconditioned cars and to reduce duties on CBU/CKD vehicles, it is said, will have dire consequences for the indigenous manufacture and vendor industry.
Pak Suzuki's 4-part Mission Statement concerns itself with: 1) product quality, 2) employee skills, 3) indigenization and 4) industrial development in Pakistan.
Mention of a fair return to the shareholder does not find a place in the Mission Statement. Is the very low return to the shareholder determined by policy?
Pak Suzuki is unhappy that the Government has decided "in principle to allow import of reconditioned cars and to reduce duties on CBU/CKD vehicles".
The Government is unhappy that it is having to face public criticism over what people see as inaction in the face of alleged profiteering by Assemblers in collusion with Dealers through extortion of huge premiums for quick delivery.
Buyers of cars are unhappy at having to wait for months for a car of their choice. Vendors are unhappy that the Government's decision to allow imports of CBU units or components will kill this nascent secondary industry and jeopardise the livelihood of millions.
Finally the shareholders are unhappy to have been rewarded no more than Rs 3.00 as cash dividend out of the earning per share of Rs 31.96.
The cup of general unhappiness, in short, brimmeth over! Is any body happy at all? Yes. Banks are happy that the rush to buy cars on instalment plan is easing their excess liquidity situation while bringing them business.
Also, at least some people are happy that they can finally own a car without a hefty initial outlay.
It was again a very good year for the industry as well as for Pak Suzuki. For the industry, sale of cars and light commercial vehicles grew by 59% in 2004 and the number of vehicles produced rose from a little over 59,000 in 2002 to nearly 94,000.
Pak Suzuki produced over 49,000 vehicles against nearly 30,000 in 2002, a rise of 65%. Suzuki Mehran was the main contributor to this rise.
Sales jumped to 19.5 billion (from 11.0 billion in 2002) and gross profit to Rs 2,463 mln (1,388). Down the line, profit before tax was Rs 2,382 mln (1,317) and earning per share was a very remarkable Rs 31.96 (17.30), a jump of nearly 85%.
Then comes the anti-climax. The shareholder was rewarded with less than 10% of the net earning.
The Balance sheet is awash with cash amounting to over 5.7 billion thanks partly to advances received from potential buyers. The current ratio is comfortable and long term loans are zero.
Almost alone among the Automobile manufacturers, Pak Suzuki has been consistently drawing attention in its reports to the shareholders to the threat posed to our auto industry by the imminent elimination of Trade Related Investment Measures (TRIMs) which allowed Pakistan to maintain a duty structure against auto and auto parts imports.
This "concession" was to expire by December 2003 end under WTO conditionalities. The Government of Pakistan has requested a 3-year extension of TRIMs and the Report urges the Government to take advantage of the "current favourable situation" to achieve "this long awaited development of the industry, of the society and of the nation in the years to come".
Pak Suzuki is particularly vulnerable from cheaper imports as the bulk of its production and sales lies in this area. In the higher, 1,300 CC class, its Baleno, (a comely number) though coming up, is way behind Corolla and Honda models in the market.
With a robust sales book and a long waiting line of buyers and with no dearth of lenders at relatively easy terms, continued prosperity seems assured for the Auto industry except for the threat of TRIMs withdrawal and the Government's decision in principle to lower import barriers.
The share is very liquid despite trading at around 13 to 14 times its value most of the recent days. In March 04 nearly 3.7 million shares changed hands at prices ranging between Rs 135 and Rs 145.60.
Suzuki Motor Corporation of Japan holds just over 73% equity, while 2,386 individuals hold a little over 9%. The remaining 18% is owned by various entities.
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Performance Statistics (Million Rupees)
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Year Ending 31 December 2003 2002
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Liabilities:
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Authorised Capital: 1,500 1,500
Paid up Capital: 491 491
Reserves: 3,579 2,157
Equity: 4,071 2,648
Non-Current Liabilities: Nil Nil
Current Liabilities: 5,604 5,511
Total Liabilities: 9,675 8,159
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Assets:
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Tangible fixed assets: 926 84
Deferred Tax Asset: 144 91
Other Non-Current Assets: 67 39
Current Assets: 8,542 7,183
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Sales, Profits & Payout:
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Net Sales: 18,484 10,994
Gross Profit: 2,643 1,388
Operating Profit: 2,414 1,196
Other Income: 184 242
Financial Charges: 37 20
Profit Before Tax: 2,382 1,317
Profit After Tax: 1,571 916
Cash Dividend (i, Rs): 3.00 3.00
Cash Dividend (f, Rs): 3.00 3.00
Stock Dividend (%): 20 20
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Ratios:
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Earning/Share (Rs): 31.96 17.30
Cash Payout Ratio (%): 9.4 16.8
Share Price on 23/4/04 (Rs): 129 -
P/E Ratio: 4.03 -
Book Value of 10 Re Share: 82.91 53.93
P/BV Ratio: 1.7 -
Gross Margin (%): 14.3 12.6
Net Margin (%): 8.5 7.7
Debt/Equity Ratio: 0:100 0:100
Current Ratio: 1.52 1.30
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COMPANY INFORMATION: Chairman & Chief Executive: Yasuo Suzuki; Directors: Katsuichiro Ota, Major Sagheer Ahmed (Retd), Hideki Yamazaki (CFO), Sokichi Nakano, Yoshihiko Kakei, M.R. Monem; Company Secretary: Abdul Hamid Bhombal. Registered Office: DSU-13, Pakistan Steel Industrial Estate, Bin Qasim, Karachi. Registrars: Ferguson Associates (Pvt) Limited, State Life Building 1-A, I.I. Chundrigar Road, Karachi.
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