Looking at the financial statement of Honda Atlas Cars (PSX: HCAR), one wonders, how did the company manage to raise its net earnings by 9 whopping times from last year when all major metrics are down. Revenues in MY24 are down 42 percent; while the company sold roughly 10,530 units, nearly 15,000 units less than last year; down 59 percent. Demand for automobiles has drastically shrunk in the past year, and it shows.

Because of higher prices for vehicles all around, the company’s revenue per unit sold showed a marked uptick from Rs3.7m to Rs5.3m—this helped keep up with costs that rose from Rs3.4m to Rs4.8m per unit. As a result, the company maintained gross margins of 8 percent—same as last year. Better procurement plans and price hikes worked in the company’s favors—from a margin’s perspective.

Moving down the income statement, it is evident that the company’s overheads and finance costs also rose. As a share of revenue, finance costs grew to 4.3 percent (from 2% in MY23) and administrative and marketing expenses grew to 2.2 percent compared to last year’s 0.4 percent. However, other charges declined significantly here. They were 5 percent of revenue during MY23 and fell to 1 percent this marketing year. Meanwhile, other income from cash balances and short-term investments continued to buttress the bottom line in a big way, if not the same levels as last year—in MY24, it was 82 percent of before-tax earnings. Last year, it was higher at 117 percent.

Nevertheless, the real kicker for Honda was the significantly reduced tax burden that tipped the scale for the company. Effective tax in MY24 was only 15 percent which is much lower than last year’s 87 percent. This along with “other income” and sustained margins brought after-tax earnings to stand at Rs2.3 billion, up dramatically from MY23’s Rs260 million only.

Honda ran promotions for its various models and for a brief period also offered priority sales, immediate deliveries and extended warranties. This should have boosted sales, but demand remained weak. The company also spent a large number of days in non-production as supply constraints and demand slowdown continued to thwart production. But while demand prospects remain sluggish for the next few months—even as prices have been reduced—the company has managed to keep its shareholders happy by offering a final dividend of 65 percent (Rs6.5 per share).