It may not well be all rosy at the top, but as they say, all is well that ends well. And it certainly did end well for Honda Atlas Cars (Pakistan) Ltd (HCAR) for the six months ended September 2014. Despite a sizeable drop in revenues, HCAR still managed to post a mammoth growth in profits. The half year pre-tax profits went up by three times year-on-year, whereas 2Q pretax profits jacked up by over 7 times year-on-year.
HCAR faced a significant decline in production of its flagship Honda Civic, registering 8 percent year-on-year decline during the half year. The slowdown in demand seems to have resulted from stiff competition from its closest rival. Corolla sales have increased significantly during the same period, eating away HCARs segment share.
Honda Citis sales offered some respite, registering a decent 9 percent growth during the half year. But even Citi sales have of late shown signs of weakness, dropping by 4 percent year-on-year in the second quarter of the financial year.
The cost of sales more than made up for the drop in revenue, as depreciation in Japanese Yen and a stable local currency aided the gross profits. The gross profit margins swelled considerably to over 13 percent for the half year, nearly double the margins recorded in the same period last year.
HCAR has managed to increase its single shift capacity to 100 units per day, in order to keep pace with the future demand. But the signs in the near term appear ominous: analysts expect HCARs sales to remain depressed in the coming quarters, as Corolla is being pitched as the one which will take away the high end share. The bottom line has gained strength, but if sales fail to improve, it may not be sustainable.
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HONDA ATLAS CARS
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Rs (mn) Jul-Sep 2014 chg Apr-Sep 2014 chg
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Sales 8089 -23% 19374 -9%
Cost of sales 6936 -29% 16792 -15%
Gross profit 1152 60% 2582 67%
Other operating cost 259 -57% 359 -51%
Profit from operations 771 648% 2048 166%
PBT 769 682% 2043 172%
PAT 586 1216 287%
EPS (Rs) 4.11 8.52
Gross margin 14.2% Up 730 bps 13.3% Up 600 bps
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Source: KSE notice
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