Suzuki bites the dust

If you sold more than double of what you did last year; increased your sales volume as well as price, yet managed to book losses, then you are probably running Pakistan Suzuki Motor Company.
PSMC performed wonderfully well on the sales front, especially in the low-end segment, as evident by robust sales growth in Mehran and Ravi brands. The newly introduced Swift also performed swiftly, contributing towards the sales.
Significant turnaround in auto financing at the tail end of the quarter also contributed towards the doubling of sales, as auto loans turned green in March for the first time in 18 months. That said, the robust sales increase need not be blown out of proportion as the low base effect of previous year also had its say.
But then, it is never easy business when you are heavily dependent on imports and thus highly exposed to currency fluctuations. That is exactly what hurt PSMCs gross margins, which went down to a miserable 1.4 percent, leaving hardly any room for the bottom line to go green.
The increased manufacturing cost and fast depreciating rupee both against Japanese Yen and the greenback during the quarter, made it mighty tough to stay afloat.
Going forward, PSMC is expanding into new product categories, Swift and recently introduced cargo van, which can help the firm expand its customer base and realize higher sales in the future.
PSMC sales growth confirms that small manufacturers are on right track but the company would not be able to be profitable without passing the cost to end consumer. On top of that, since the firms sales mix is more tilted towards lower end vehicles, it becomes difficult to pass on the cost to highly price sensitive consumers.

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PSMC

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Rs (mn)                 1QCY10    1QCY09      %chg

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Turnover                10,035     4,140      142%

Cost of sales            9,893     3,949      151%

Gross profit               142       191      -26%

Gross margin              1.4%      4.6%      -69%

Admin expense              142       113       26%

Distribution expense        68        47       45%

Other operating income     144       123       17%

Finance cost                27         2     1321%

Net (loss)/ profit         -17        91     -119%

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Source: KSE Announcement