On July 01, 1990, the House of Habib, Toyota Motor Corporation Japan (TMC) and Toyota Tsusho Corporation Japan (TTC) established Indus Motor Corporation for assembling, manufacturing and marketing of Toyota vehicles in Pakistan. Indus Motors Corporation (IMC) has a vast network of dealers providing after sales services, these dealers operate on 3s basis (sales-service-spare parts). IMC has 28 dealers in 16 cities providing these services. Product range Corolla Corolla is Pakistan's favourite sedan, its new ecotec model comes with factory fitted CNG which gives the driver the option to drive either on petrol or gas. Coure From the world of Toyota comes the Daihatsu Coure which gives the drivers consistent reliability, safety and a drive beyond ordinary. Hilux Toyota Hilux masters smooth and rough terrains alike. Its high tensile steel body and galvanised body panels provide strength and rust protection which makes Hilux last years. Imported vehicles Prado, Terious, Avanza, Landcruiser, Camry, are Toyota's premium cars not yet manufactured in Pakistan. IMC facilitates their import and maintenance. 2011 highlights 2011 proved to be another tough year for IMC; it began with the worst floods in the history of Pakistan displacing millions of people and effecting the socio-economic environment of the country. The depreciation of rupee against yen by nine percent fuelled the inflationary pressure. Power shortages, increasing raw material cost and weakening law and order situation escalated the firm's manufacturing cost. While IMC was still facing these challenges, their global supply chain was disrupted by tsunami that struck Japan. As a consequence, the IMC had to cut its production. The government of Pakistan's decision to liberalise the used car import policy by increasing its age limit from three to five years also hit the local manufacturers. Despite the difficult business environment, the demand for total cars (passenger cars and LCVs) in the country grew by three percent to 148,438 units out of which IMC was able to grab 33 percent of the market share. The increase in demand for cars owes to the record high remittances and high agriculture income due to good high support prices given to the farmers. The firm's revenue grew by 2.6 percent year-on-year in 2011, even though the units sold decreased to 50,943 from 52,441. The slight reduction in the volumetric sales is attributed to the deferment of purchases by the customers to benefit from the tax reduction. The sales of Corolla declined slightly from 43,510 in 2010 to 41,111 in 2011. Due to increasing diesel prices, the demand for 2.0D variant of Corolla almost completely eroded. IMC launched the new fuel efficient model of Corolla with a 1.6 liter engine, keeping in mind the increasing petrol prices. IMC still has the highest market share of about 72 percent in this segment. In the economy-car segment, the sales of Coure went up by 13 percent from 5,301 units in 2010 to 6,007 units in 2011. Since Coure is an economical option, the increase in fuel prices has pushed up its demand. The market share of Coure is 20 percent, much lesser than its main competitor Mehran which sold more than 24,000 units in 2011. The company has decided to discontinue Coure due its high cost and low profitability and bring another alternative. The light commercial vehicle demand fell by 40 percent this year from last year's 3,139 units to 1,896 units. The imported CBU (completely built units) demand fell by about 20 percent due to high luxury duty on imported cars. IMC lost three percent of its market share in this segment. Localisation programme Indus Motors has successfully implemented the second phase of its press shop project, enabling the company to manufacture car roofs, fenders, doors, other parts locally. The localisation programme to a certain degree was offset by inflation and rupee depreciation against dollar and yen. IMC is using different financial options to manage the exchange rate risk but these options are not proving very fruitful. At the moment, 1,249 parts are procured from local vendors - the total value of parts locally manufactured is Rs 19 billion. This localisation programme is helping Toyota tackle the constant foreign exchange risk which is swiping off the profit margin. Based on the financials available, Indus Motor's vehicles on average use 38 percent local parts, which means there still is a lot of room available for localisation. Financial health Cost of sales The depreciation of rupee against yen and the higher raw material cost pushed up the costs of production which eroded all the profit in 2011. Gross profit margin The gross profit margin decreased by 1.45 percent in FY11. The margin was at the level of 6.6 percent as compared to 8.08 percent in FY10. FY10 saw an increase of gross profit, but this upward move was not sustained. Even though the revenue was higher than FY10 - the high cost of purchases trimmed down the gross profit. Net profit margin The net profit margin was 1.28 percent less than last year, but was still higher than 2009. The difference between the decrease in gross profit margin (1.45 percent) and net profit margin (1.28 percent) of FY10 and FY11 shows that the decrease in profitability margins should be mainly attributed to higher cost of purchases.
======================================================== INDUS MOTORS ======================================================== (Rs mn) FY11 FY10 FY09 ======================================================== Sales 61,703 60,093 37,865 Gross profit 4,089 4,857 2,324 Operating profit 4,089 5,386 2,073 Profit before tax 4,011 5,243 2,046 Profit after tax 2,743 3,443 1,385 Working capital 10,327 9,566 6,830 Non current liabilities 454 326 504 Gross margin (%) 6.63 8.08 6.14 Operating profit margin (%) 6.62 8.96 5.47 Net margin (%) 4.45 5.73 3.66 Current ratio 1.84 1.67 1.69 Total asset turnover 2.29 2.21 1.83 Fixed asset turnover 16.3 16.6 9.5 Inventory turnover 11.0 12.0 11.0 Return on capital employed 19 27 13 Return on equity 19 27 14 Earnings/(loss) per share (Rs) 35 44 18 PE ratio 6 6 6 Market value per share (Rs) 220 262 108 Units sold 50,943 52,063 35,276 Dividends 15 15 10 Dividends payout ratio % 43 34 57 ========================================================Source: Company Accounts COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder. DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information]. Tomorrow: Company analysis UBL All information and data used are from reliable source(s) and subjected to extensive research after diligent and reasonable efforts to determine the soundness of the source(s). This analysis is not for the benefit of or discredit to any person, scrip or tradable instrument. The content(s) of this analysis shall not be construed as an advice or recommendation to trade. No relationship of client will be created between Business Recorder and user of this information. Professional advice must be taken by the reader before making investment/trading decisions. BR disclaims any liability for investment(s) made or liability accrued on basis of this analysis. The content(s) including all opinion(s), statement(s) and information are subject to change without prior notice and/or intimation.