Hinopak Motors Limited (PSX: HINO) was incorporated as a public limited company in Pakistan in 1986. The company is engaged in the assembly, progressive manufacturing and sale of Hino buses and trucks as well as sale of its spare parts and accessories. HINO is the subsidiary of Hino Motors Limited Japan. The ultimate parent company of HINO is Toyota Motors Corporation Japan.

Pattern of Shareholding

As of March 31, 2024, HINO has a total of 24.801 million shares outstanding which are held by 1659 shareholders. Hino Motors limited Japan and Toyota Tsusho Corporation Japan are the major shareholders of HINO collectively accounting for 89.5 percent shares of the company. These are followed by local general public holding 6.53 percent shares of HINO. NIT & ICP have stake of 3.38 percent in the company. The remaining shares are held by other categories of shareholders.

Historical Performance (2019-24)

Except for a year-on-year rise in 2022 and 2023, HINO’s topline has been inching down in all the years under consideration. The company’s bottomline also stayed in the positive zone in 2022 and 2023. Gross and operating margins of the company slid in 2019 and entered negative zone in 2020. In the subsequent two years, GP and OP margins greatly recovered followed by a downtick in 2023. In 2024, GP margin registered its highest value while OP margin slumped. Net margin posted positive value only in 2022 and 2023. The detailed performance review of the period under consideration is given below.

In 2019, HINO’s net sales slumped by 28.12 percent year-on-year as the commercial vehicle industry in Pakistan shrank by 14 percent year-on-year due to depreciation of Pak Rupee coupled with the slowdown of CPEC on account of lesser government spending in the project. Besides, the auto industry also suffered volumetric decline due to restriction imposed on the purchase of vehicles by non-filers. During the year, the company’s sales of HINO Chassis slumped by 34 percent year-on-year to clock in at 2850 units. Conversely, bus and other bodies and well as Hilux frame recorded an uptick of 72 percent and 0.5 percent to clock in at 822 units and 10,377 units respectively. The company was able to maintain its market share of 31 percent and 41 percent in truck segment and bus segment respectively. Due to decline in the company’s manufacturing operations, cost of sales dropped by 23.59 percent year-on-year in 2019. High per unit cost is evident by the fact that gross profit shrank by 63.31 percent year-on-year in 2019 while GP margin fell from 11.4 percent in 2018 to 5.82 percent in 2019. Owing to lesser staff cost, curtailed advertising and promotion budget as well as slashed legal and professional charges, distribution cost ticked down by 18.3 percent year-on-year in 2019. Administrative expense also declined by 9.93 percent year-on-year in 2019. Other income posted a massive 50.92 percent year-on-year plunge in 2019 due to lesser return on bank deposits and lesser commission from Group Company. Other expense plummeted by a whopping 98.91 percent year-on-year on account of low provisioning for WWF and WPPF in 2019. The company also booked impairment of Rs. 19.53 million on trade receivables in 2019. Operating profit shriveled by 78.64 percent year-on-year in 2019 while OP margin inched down from 8.82 percent in 2018 to 2.62 percent in 2019. Finance cost grew by 50.49 percent year-on-year in 2019 on the heels of high discount rate and also because of short-term loans obtained by the company during the year which were not on its books until 2018. However, the major component of finance cost was exchange loss which stood at Rs.815.803 million in 2019, up 28 percent year-on-year. The company recorded net loss of Rs.873.28 million in 2019 as against the net profit of Rs.1149.38 million in 2018. HINO posted loss per share of Rs.70.42 in 2019 versus EPS of Rs.92.69 in 2018.

In 2020, HINO’s topline posted another 31 percent year-on-year slump. The automobile market shrank by 44 percent year-on-year in 2020 to clock in at 4934 units due to contraction of economy on account of COVID-19, lockdowns imposed during the year and restriction on the movement of people and goods which lowered the demand of automobiles. The sale of Hino Chassis further reduced to 1639 units, down 42.5 percent year-on-year. The sale of bus and other bodies also massively plunged to 345 and 5897 respectively, registering a downfall of 58 percent and 43 percent correspondingly. High inflation and Pak Rupee depreciation kept the cost of sales elevated, resulting in a gross loss of Rs.170.41 million in 2020. Meticulous cost cutting measures resulted in a reduction of 2.36 percent and 6.11 percent year-on-year in distribution expense and administrative expense respectively despite high inflation. Other income slid by 43.86 percent year-on-year in 2020 on account of lesser profit on saving deposits and lesser scrap sales made during the year. the company didn’t incur any other expense in 2020. Impairment on trade receivables also shrank by 23.63 percent in 2020. Despite keeping a check on expenses, HINO posted operating loss of Rs.809.218 million in 2020. Finance cost grew by only 1.27 percent year-on-year due to substantial drop in exchange loss as the company made lesser imports owing to curtailed demand in the local market. Net loss magnified by 135.32 percent year-on-year in 2020 to clock in at Rs.2054.98 million with loss per share of Rs.110.33.

The sales of HINO couldn’t recover and posted another 30.77 percent year-on-year plunge. The automobile market also further contracted by 29 percent year-on-year in 2021. The sale of Hino Chassis and bus and other bodies plummeted by 54 percent and 21.5 percent year-on-year respectively in 2021 while the sale of Hilux frame showed signs of recovery and grew by 53 percent year-on-year (see graph of sales volume). The company was able to post gross profit of Rs.687.37 million in 2021 as against the gross loss of Rs.170.41 million in 2020. This was on the back of upward price revisions and cost control measures put in place by the company. Distribution expense shrank by 11.68 percent year-on-year while administrative expense remained at almost the same level as recorded in 2020. Other income slid by 26.24 percent year-on-year in 2021 as there was no commission income from Group Company in 2021. No other expense was incurred during the year and impairment on trade receivables also shrank for second year in row. Lesser expenses resulted in operating profit of Rs.70.60 million in 2021 as against the operating loss of Rs.809.218 million in 2020. OP margin was recorded at 0.77 percent in 2021. Finance cost climbed down by 77.28 percent year-on-year not only because of low discount rate but also because of the issuance of right shares during the year to pay its short-term loans during the year. As of March 2021, the company had no short-term borrowings on its books. Despite significant reduction, finance cost was big enough to turn operating profit into net loss of Rs.288.29 million in 2021, down 86 percent year-on-year. The company also posted loss per share of Rs.13.37 in 2021.

After three successive years of topline decline and net losses, in 2022, HINO posted a year-on-year topline growth of 37.22 percent. This came on the back of both volumetric growth as well as price increases. The sales volume of Hino Chassis, bus and other bodies as well as Hilux frame posted an uptick of 28 percent, 29 percent and 73 percent respectively in 2022. The overall size of automobile market also grew by 68 percent year-on-year in the financial year ending March’22 as the economy fully rebounded from COVID-19. Although cost of sales also grew by 34 percent year-on-year in 2022 on account of inflation, gross profit rebound of 75.97 percent speaks volume of the superior performance delivered in terms of revenues. GP margin grew to 9.65 percent in 2022. Owing to an increase in the company’s operations, distribution and administrative cost also increased by 14.96 percent and 5.52 percent respectively during 2022. Higher scrap sales and return on bank deposits pushed other income up by a huge 250.81 percent in 2022. Unlike last three years, where the company booked impairment on trade receivables, in 2022, the company booked reversal of Rs.16.62 million. After two year, the company was able to book provision for WWF and WPPF worth Rs.41.62 million in 2022. Operating profit grew by 844.17 percent in 2022 with OP margin climbing up to 5.32 percent. As the company paid off its short-term borrowings in 2021, finance cost majorly comprised of exchange loss and bank charges. This translated into 56.72 percent year-on-year drop in finance cost in 2022. The company posted net profit of Rs.417.13 million in 2022 with NP margin of 3.33 percent. EPS clocked in at Rs.16.82 in 2022.

In 2023, HINO’s net sales registered 5.23 percent year-on-year rise. This was for the second consecutive year that the company was able to drive its topline up. A glance at the sales volume shows that only HINO chassis posted a paltry 3 percent year-on-year rise in 2023, while the other two categories lost their ground (see the graph of sales volume). During the year, the commercial vehicle industry shrank by 15 percent due to sluggish economic activity. Import restrictions also created acute shortage of raw materials forcing many automobile industries to shut down. HINO was able to capture market share of 20 percent in 2023 as against 16.6 percent in the previous year. Escalating prices of raw materials was further exacerbated by declining value of local currency during the year. This translated into 6.52 percent surge in cost of sales in 2023. Consequently, gross profit nosedived by 6.86 percent in 2023 while GP margin fell to 8.54 percent. Inflationary pressure pushed up distribution and administrative expenses by 13.71 percent and 7.49 percent respectively during the year. Other income contracted by 4.6 percent in 2023 particularly due to low return on deposit accounts. Other expense also shrank by 64.22 percent in 2023 due to lower profit related provisioning done during the year. Operating profit dipped by 22.51 percent in 2023 with OP margin slipping to 3.92 percent. Finance cost multiplied by 151.40 percent in 2023 due to high discount rate and hefty exchange loss. HINO’s borrowings significantly declined in 2023. Net profit slid by 96.16 percent to clock in at Rs.16.03 million in 2023 with EPS of Rs.0.65 and NP margin of 0.12 percent.

Unprecedented level of inflation, political uncertainties, economic slowdown, credit tightening and high discount rate as well as import restrictions resulted in many unproductive days for HINO and the auto industry as a whole. After two years of rise, HINO’s net sales drastically fell by 42.19 percent in 2024. This came on the back of 67 percent, 35 percent and 65 percent year-on-year decline in the sales volume of HINO chassis, bus & other bodies and HILUX frame respectively in 2024 (see the graph of sales volume). Due to shutdown of operations and thinner production volume, cost of sales shrank by 44.32 percent in 2024. Gross profit also dwindled by 19.41 percent in 2024; however, GP margin attained its highest level of 11.91 percent. Distribution expense tumbled by 1.79 percent in 2024 mainly on account of lower product maintenance charges incurred during the year. Administrative expense registered 17.71 percent year-on-year surge in 2024 due to higher payroll expense. This was despite the fact that HINO right-sized its workforce from 763 employees in 2023 to 582 employees in 2024. Other income slumped by 19.59 percent in 2024 due to no return on deposit accounts recorded during the year. Scrap sales and return on saving accounts also fell in 2024. Unlike the last two years, the company didn’t book any provisioning for WWF and WPPF in 2024, hence no other expense. Operating profit contracted by 60.72 percent in 2024 with OP margin sliding down to 2.66 percent. Finance cost registered 6.47 percent slide in 2024 as the company didn’t incur any exchange loss during the year. However, short-term borrowings massively increased during the year to clock in at Rs.2285.314 million in 2024 versus Rs.19.309 million in 2023. This drove up mark-up expense in 2024. HINO registered net loss of Rs.131.10 million in 2024 with loss per share of Rs.5.29.

Future Outlook

Auto industry will continue to face myriad challenges in the ongoing year on account of forced export target, pricey auto leasing and lackluster economic activity which has put consumer spending to shame.