The outgoing year has not been kind to Pakistan Suzuki (PSX: PSMC). Throughout 2019, the company struggled to sustain volumes much like the rest of the industry but affected slightly more. Macroeconomic challenges and growth slowdown coupled with high interest rates were dominating factors towards demand clamping down. The year after, the pandemic only worsened the situation. Though the company has suffered a loss during the year—46 percent lower than the loss incurred last year—volumes seem to have bottomed out in March.

The company’s phasing out of its Mehran with the brand-new Alto garnered an incredible response from the market initially but that excitement could not be sustained during CY20. In fact, combined volumetric sales during CY19 for the two stood at 42,195 units, dropping by 44 percent during CY20. Middle class purchasing powers seem to have plummeted which has disproportionately hurt Suzuki’s performance as it is the new carmaker at the moment catering to that segment.

Used car imports have also fallen dramatically following government’s new regulations on duty payments in dollars. If demand had persisted at 2018-levels, Suzuki’s sales would have thrived as many small used cars imported compete with the local assembler. Aside from demand, prices have also been raised by auto makers that have further depleted buyers’ propensity to consume more cars. More recently, the interest rate reduction has offset some of the impact of higher prices which has revived demand again, though not nearly with the same vivacity witnessing in CY18.

The company’s financial statement tells a sorry tale, though not as bleak as last year. Despite higher prices—revenue per car unit sold on average is up 24 percent—the top-line growth was negative. Though costs of production were higher—average cost per car unit sold grew 21 percent—the company’s gross margins improved having shielded by the price increases; almost touching 5 percent. However, fairly higher overheads—5% of revenue in CY20 against 4% in CY19—and higher borrowing costs (3.5% of revenues) did not help in turning the company around to profits.

Favourable PKR-USD parity, affordable auto financing options, and a natural recovery in latent demand will shore up the bottom-line for Suzuki over the coming months. With used car imports still at bay, and no new players bringing any small cars in the market (other than Kia Picanto which has already launched and is doing well), Suzuki still has a niche market to continue to capture.