Pak Suzuki Motor Company

Pak Suzuki Motor Company Limited (KSE: PSMC) is the largest player in Pakistan's automobile industry. The company, incorporated in 1983 following a joint venture between Pakistan Automobile Corporation (PACO) and Suzuki Motor Corporation (SMC) Japan, accounts for more than half of the cars and light commercial vehicles produced and sold in the country today.
Realising the potential of automobile sector in Pakistan, SMC Japan began to gradually increase its shareholding in Pak Suzuki following the deal; its initial equity stake was 12.5 percent. When Pak Suzuki got privatised in 1992, the Japanese giant acquired additional shares from PACO to boost its shareholding to 40 percent and took over the management. As of 2014-end, SMC Japan owns nearly three-quarters of PSMC.
Pak Suzuki specialises in small and medium-sized cars, with many of the vehicle models on its assembly lines being those retired internationally. Being a producer of relatively inexpensive cars, the company faces massive demand in both urban and rural Pakistan. Pak Suzuki Company also designs and manufactures motorcycles, commercial vehicles and outboard motors.
It wouldn't be incorrect to label the car manufacturer a pioneer of the auto industry in Pakistan. The company has come a long way from the industry's nascence period in 1980s. Pak Suzuki has the largest automobile assembly facility in Pakistan; it can produce 150,000 units per annum as compared to a capacity 50,000 in 1992. The company also has the largest dealers' network (sales, service and spare parts) in Pakistan. By the end of last year, Pak Suzuki had a total of 86 dealerships in 38 cities.
Recent Performance In the first half of 2015 (ended June); Pak Suzuki reported a 50 percent jump in its unit sales year-over-year - in line with the overall industry's growth. The company's sales volume of 63,307 in the period represents a 56 percent share of the industry-wide volume.
The auto sector behemoth bagged sales of Rs 40 billion in the six-month period, 37 percent higher than the corresponding period of 2015. The reason why unit sales growth outpaced the expansion in rupee turnover was an unfavourable sales mix. Paz Suzuki sold 19,893 units of Suzuki Bolan and Ravi to the Punjab Government under the "Apna Rozgar Scheme." The 31 percent contribution of these relatively inexpensive models to the sales mix meant that company's average revenue (per unit) declined year-over-year. Pak Suzuki's 50,000-unit contract with the government of Punjab under this scheme is expected to be completed by February 2016. In the first half of 2015, Pak Suzuki said it utilised 82 percent of the capacity available.
While the company enjoys a dominant hold of the automobile sales in Pakistan, its presence in motorcycle (and three-wheeler) market segment is still insignificant. From an industry-wide sales figure of 412,911 (up 8 percent YoY) units in 1H15, Pak Suzuki only sold 11.957 - down 5 percent YoY. The presence of a host of local, inexpensive brands, coupled with the addition of a new competitor in the motorcycle segment, Yamaha Motors Pakistan, means that Pak Suzuki has nothing to write home about in this division.
Profitability is one area where the company has consistently improved. The margins have gone up significantly in the last five years; from a gross profit margin of 2.35 percent and a net profit margin of 0.5 percent in FY10, Pak Suzuki now stands at 12.75 percent and 6.05 percent respectively (1H15).
In the six months ended June, Pak Suzuki reported a gross profit of Rs 5.1 billion - a 129 percent jump from the year-ago period. After-tax profits also experienced a 134 percent hike YoY to Rs 2.4 billion. Per-share earnings in 1H15 were Rs 29.4, compared to Rs 12.6 after 1H14.
Widespread financing options have undoubtedly made vehicle ownership easier and have helped the auto industry grow. The sector still looks positive going forward, but there are a few concerns as well. The recent weakness of rupee (with possibly more to come) might entail local automakers paying higher for imported parts. Also, the import of used cars (mainly from Japan) has seen a steep upsurge in recent years. Since most of them are small or medium-sized cars, their growing popularity is a direct threat to Pak Suzuki. Moreover, there have been reports of other global players entering the Pakistan auto industry, like Volkswagen, which again, poses a direct threat to Pak Suzuki.