Honda Atlas Cars Pakistan Limited (KSE: HCAR) was incorporated in November 1992 and is a joint venture between the Honda Motor Company Limited Japan and the Atlas Group of Companies in Pakistan. The company's plant was established in Multan in 1993, with the first car rolling out of the assembly line a year later. HCAR is listed at the Karachi, Lahore and Islamabad Stock Exchanges. The board of the company is chaired by Mr Yusuf H. Shirazi while Mr Takeharu Aoki serves as the President and CEO.
With initially six dealerships in Karachi, Lahore, and Islamabad in 1994, the company's network has now grown to twenty-one 3S (sales, service, and spare parts), eighteen 2S (service and spare parts) and five 1S (spare parts) authorised dealerships in all major cities of the country. Since beginning operations, the company had produced and sold over 200,000 cars till July 2012. HCAR currently offers Honda Accord, Honda CR-V, Honda CR-Z, Honda Civic (four models) and Honda City (four models) in a range of colours. In 2003, HCAR achieved the ISO 14001 certification.
INDUSTRY OVERVIEW The automobile industry having experienced muted performance during the first three months of the financial year rebounded with a bang especially in the second half of FY15. The total car sales witnessed an increase of 11 percent across categories, with the biggest jump witnessed in 1300cc and above category, registering a mammoth 22 percent increase year-on-year.
Of the three passenger car categories, production of upto-800cc category cars jumped by 9 percent year-on-year during second half of FY15, whereas the sales in the category dwindled by 4 percent year-on-year. The 1000cc category registered decent double digit growth of 15 percent year-on-year in both production and sales. The real game changer was the 130cc and above category where the demand jacked up by 22 percent year-on-year during the discussed period, further strengthening its leadership status across categories.
OPERATIONAL PERFORMANCE During the July-December 2014 period, Honda Atlas Cars Pakistan posted a decrease of 11.5 percent year-on-year in production to 9645 units down from 10906 units. The sales though dipped by a larger magnitude as HCAR's vehicle demand slid by 14 percent year-on-year during the period. This is despite a 22 percent year-on-jump in the industry wide category sales, indicating HCAR lost quite a lot of ground in market share.
The biggest disappointment was in the flagship variant Honda Civic, the sales of which went down by 29 percent over the corresponding period last year. Honda City too failed to live up to expectations as sales during 2HFY15 dwindled by 3 percent year-on-year.
HCAR's category market share fell drastically in the 2HFY15 to 28 percent, from as high as 39 percent in the same period previous year. Bulk of the demand was catered by the market leader Toyota, whose Corolla brand enjoyed the lion's share registering massive year-on-year sales growth of a massive 61 percent.
HCAR introduced new evolved models of Honda City and Honda City Aspire in October 2014. The tough market conditions dictated the pricing as there was no significant price increase for the new models. The company's flagship Honda Civic was voted 'car of the year' in a recently launched survey by Pakwheels.com, whereas Honda City was categorised as the 'most fuel efficient car'.
FINANCIAL PERFORMANCE Having faced tough conditions in the years gone by, the current financial year has brought some good news for the automobile industry in general and HCAR in specific. The biggest relief came from the depreciating Japans Yen, which slid by as much as 30 percent in relation to the Pakistani rupee, contributing significantly to the profits.
The top line growth remained subdued, as drop in volumetric sales resulted in a revenue drop of 9 percent year-on-year during nine month period of the current financial year. The cost rationalisation and capacity utilisation further boosted the gross profits which jumped by 68 percent year-on-year despite slowdown in revenue. The single largest factor although remained the depreciating Japanese Yen.
The gross profit margins nearly doubled to a record high 13 percent for the period. Such is the magnitude of improvement in profitability margins that even the net profit margins for the period compare well with the gross margins of yesteryear.
There was also a 30 percent increase in administrative and selling expenses, mainly on account of advertising and promotion expenses and wages and compensation. There was a 25 percent decrease in other income mainly resulting from high base effect. Financial charges declined by 49 percent year-on-year along with a 54 percent reduction in other expenses. Pre-tax profits swelled by a handsome 152 percent. Little wonder that the net profits nearly quadrupled year-on-year, and HCAR owes a note of thanks to the Japanese currency depreciation.
FUTURE OUTLOOK Things are looking up for Pakistan's economy as inflation is fast slowing down and as a result interest rates are at a multiyear low. This should allow the automobile sector to expect improved demand going forward as banks might start financing more aggressively, sooner than later.
There are still question marks and uncertainties over the policy matters as import cars and lack of continuity in the duty structures are issued flagged by the industry as stumbling blocks. HCAR is still determined to continue its efforts towards cost rationalisation and efficiency enhancements and is confident of the success of its latest models. The biggest competition it faces ifs from the Corolla brand, and HCAR would want 2015 to yield better results in terms of volumetric sales, despite record high financials for the period.
=================================================================
HCAR Key Financials
=================================================================
Nine months ending December 31
=================================================================
Rs (mn) 2014 2013 2012 2011
=================================================================
Sales 25264 27620 19515 14442
Cost of sales 22018 25685 18648 14155
Gross profit 3246 1936 866 287
Distribution & marketing expenses 249 192 145 95
Administrative expenses 221 172 144 117
Other income 153 204 103 173
Other expenses 327 715 404 195
Profit from operations 2602 1061 276 53
Finance cost 17 34 148 95
Profit before taxation 2584 1026 128 -42
Taxation 1010 585 118 100
Profit after taxation 1575 441 10 -143
EPS (Rs) 11.03 3.09 0.07 -1.00
=================================================================
Source: Company reports
Comments
Comments are closed.