All
 

 

Just in:  

You are here: Home»Home»BR Services»Subscribe to BR

ATLAS HONDA PAKISTAN LIMITED

Financial Analysis FY’07 - 1st Qtr ended June 2010

Atlas Honda Limited is a joint venture between the Atlas Group and Honda Motor Co., Japan. The company was created by the merger of Panjdarya Limited and Atlas Autos Ltd. in 1988. Both these motorcycle manufacturing concerns were established by the Atlas Group. In addition, a third concern, Atlas Epak Ltd. was taken over by the Government of Bangladesh. Atlas Honda Limited manufactures and markets Honda motorcycles in collaboration with Honda Motor Company. The Company also manufactures various hi-tech components in-house in collaboration with leading parts manufacturers like Showa Atsumitech, Nippon Denso and Toyo Denso. Honda motorcycles are by far the largest selling motorcycles in the country with an unmatched reputation for high quality, reliability and after-sales-service.
Atlas has undertaken to develop local manufacturing capabilities to the highest, economically feasible level. While a major role in localization has been assigned to vendor industries, Atlas has the country’s largest in-house manufacturing capability at its Karachi and Sheikhupura plants. To support the production facilities, the company has established an R&D wing and tool making facilities through CDA & CAM which are growing rapidly in size and function as the company expands. Atlas has managed to execute 14 Joint Venture/Technical Assistance Agreements between local vendors and foreign manufacturers for transfer of technology. Besides, Atlas has directly executed 5 Joint Venture/Technical Assistance Agreements other than Honda.
In addition, the company also launched a new model of CD 100 Euro-2 in the year 2009, launched a new model of CG 125 Deluxe Euro-2 and acquired ISO 14001-2004 Environment Certificate.
THE MOTORCYLCE INDUSTRY:
Over all, the industry sold 1.2 million bikes in the financial year ended 2010 as opposed to 850,000 units the year before. After witnessing a 41% growth in motorcycles sales growth since last year, the industry is now expecting another 15% growth in the industry for FY’11. Most of it attributed to a hike in petrol and prices of 4 wheelers which made motorcycles more attractive for the common man. In addition, water shortages and escalating steel prices are putting the present situation very challenging to operate in.

Especially those players who are indulging in sales tax evasion, smuggling and under invoicing are making it very hard for the formal sector to achieve its target and hit economies of scale which are critical for exports. The motorcycle sector however, experienced an overall growth in sales of 44 percent over the last year.

PRODUCTION

The financial year 2010 witnessed an unprecedented increase in material process internationally coupled with an unfavorable exchange rate and jump in the commodity process locally. Atlas Honda, however, was able to absorb most of the cost impact by focusing on improved efficiency and process optimization.

Atlas Honda sold 483,028 units this year as against 359,525 units last year.

Financial Performance (FY’07 – 1st Qtr FY’11)

Atlas Honda maintained its market leadership position in this challenging scenario. In spite of a challenging environment prevailing during this period, automotive sector, on the whole, maintained positive outlook. The installed capacities in almost all the sub-sectors have continued to increase indicating a strong commitment on part of the strategic investors to the country and the long term prospects of the industry. There was an overall increase in production and sales of Motorcycles throughout the country for all motorcycles assemblers and makers. In 2009, production and sales stood at (Prod: 509,054 & Sale: 507, 924) and in 2010 we have seen these numbers increase by 44%  (Prod: 736, 861 & Sale: 737, 759).

The major tool to fight the price escalation effect has been to improve efficiency in serving the customer through an all encompassing approach of Sales, Service and Spare Parts. The company has continued to establish Smart Sales Point which will improve accessibility, efficient service and ready sales of parts. Another challenge faced by the company is to compete with low quality, smuggled, and counterfeit parts which are rampant all over the country and are readily available.

In 1st qtr of FY’11, the company has shown drastic improvement in its revenue. If the sales continue to increase at the same rate, the company is likely to achieve a 26% growth at the end of the year. If we compare the quarterly performance of Atlas Honda, it can be observed that in the same quarter last year, the company had a sales revenue of 5.4 billion which has now increased to 8 billion showing a 47% change in the sales revenue of the company. This increase in sales has positively affected the bottomline profitability of the company.

Particluars

Quarter ended June 30

% change

2010

2009

Net Sales

8,021,294.00

5,445,863.00

47.29%

Gross Profit

618,103.00

392,656.00

57.42%

EPS

3.59

2.11

70.14%

Profitability

The cost of goods sold has shown a stark increase of 84% in FY’10 from Rs. 12.7 bn to Rs. 23.5 bn. In tandem, total revenue also grew 85% from Rs. 13.7 bn in FY’09 to Rs. 25.5 bn in FY’10, the highest turnover the company has witnessed resulting to slight increase in profitability.

Administrative expenses increased by 60% from Rs. 165 mn in FY’09 to Rs. 264 mn in FY’10. However, selling and distribution expenses took an even higher jump of 155% as
compared to only increasing by 1% in the previous year. This increase was experienced due to greater integration with dealer network. The company has now expanded its dealership network from only 300 dealers in FY’09 to 330 dealers in FY’10 to improve accessibility and efficient service.

A considerable increase was also witnessed in Atlas Honda’s Operating Profit (EBIT) for FY’10 as it increased by 97% from Rs. 604 mn in ’09 to Rs. 1,189 mn in ’10.

Bottom line figure has also shown a robust increase vis-à-vis all the other increases. Net income after taxes has jumped 217% standing at Rs. 712 mn as compared to Rs. 224 mn in FY’09.

Looking at 1Q’11 performance, we can expect that the company is likely to experience  an increase in cost of sales by 26% whereas revenues are also expected to increase by 26% for the full year FY’11. The administrative costs have shown a drastic shift from 0.55 billion in the last quarter to 0.75 billion, however the impact is offset by an increase in operating income which increased by almost 50%. Operating expenses also showed slight increase, but the increase in operating income will offset that impact also. Most impressively, the company has been able to reduce the percentage of sales devoted to cost of goods sold from 92.79% to 92.29%. This was one of the drivers that led to a bottom line growth from 132.2M to 224.8M.  Moreover, this growth in profits can be attributed to higher sales in the quarter and also to decrease in financial expense. The interest expense decreased by 26% as compared to the last quarter and this is likely to give a positive signal to the market.
LIQUIDITY:

The liquidity of the company improved this year as the current ratio increased from being 1.25 in 2009 to 1.49 in 2010. However the company showed a decreasing current ratio as compared to the last quarter. This is because the current assets rose by 15% whereas current liabilities increased by 27% because of an increase in trade payables.

The quick ratio of the company also increased from 0.56 in FY’09 to 0.93 in FY’10. In order to increase its current and quick ratio further, the company needs to use its resources in more efficient manner to produce more cost-effectively. The ratio remained stable in this quarter and this can be accounted to increase in inventory. Inventory levels rose by 20% reflecting that most of the company’s working capital is tied up in inventory which is not good for the company.

DEBT MANAGEMENT:

The debt to asset ratio has decreased from 56% in 2009 to 54% in 2010. Debt to equity has shown a slight decrease standing at 1.19 as opposed to 1.25 in FY’10. It would be favorable if Atlas Honda tried to reduce this ratio further.
Overall, the low ratios indicate proficient use of debt by the company and signal a better solvency picture. TIE ratio has improved indicating that it has become easier for the company to make its future payments in 2010 (10.6X) as compared to 2009 (2.4X) and has remained stable in this quarter also. The company has also experienced a decrease in its financial charges by 55% from Rs. 251mn in FY’09 to Rs. 112 mn in FY’10.
Cash position has significantly improved as well, a 158% rise shows that much cash is available however; excess cash should be put to speedy use in viable projects. Overall the performance of the company with respect to debt management has improved in the last year and has remained stable over this quarter.
ASSET MANAGEMENT RATIOS:

Atlas Honda follows a policy of managing its assets in a consistent manner. The Day Sales Outstanding ratio has not improved much during this period but has dropped from 7 days in FY’09 to 5 days in FY’10. The ratio has again showed an increase t 7 days in its first quarter. Accounts Receivable are among the industry's worst with 6.04 days worth of sales outstanding. This implies that revenues are not being collected in an efficient manner. Last, Atlas Honda Ltd. is among the least efficient in its industry at managing inventories, with 26.44 days of its Cost of Goods Sold tied up in Inventories.

The operating cycle in 2010 has decreased and stands at 36 days as opposed to 55 days in 2009 and has further decreased to 29 days.  This may be attributed to the better demand in the recent period that resulted in higher sales and inventory. The inventory turnover days has dropped 48 in ’09 to 31 in 2010 and further decreased in the 1st quarter to 22 days. Efficient converstion of inventory into sales and collection of receivables has helped the company to improve its cash position and provide the needed cash to retire its debt and pay it interest charges.
The total asset turnover has doubled over the previous year indicating that assets were managed and utilized in a more productive manner in the year 2010. The sale to equity ratio has also shown and increase and it improved from 4.12 in the fiscal year 2009 to 6.56 in the fiscal year 2010, showing the company is more able to make use of its assets.
Market Valuation

The EPS shows a remarked improvement as compared to the 1st quarter of the last financial year. This quarter’s EPS is Rs 3.059 as compared to 2.11 in FY’10 showing an increase of more than 70%.

FUTURE OUTLOOK:

The company believes in seeing a sustained growth in agriculture, manufacturing and service sector which will all indirectly bode well for the motorcycle industry. If foreign exchange reserves increase on the back of imports contraction coupled with continue strong remittances, the company for sees another year packed with growth and unprecedented sales revenue.

Honda is no doubt the market leader with respect to motorcycle sales with 65% of production and sales belonging to Atlas Honda. However, with continued electricity shortages, water disruption, deteriorating law and order situation, rising inflation and depreciating Pakistan Rupee the motorcycle industry is in desperate need to revamp its focus and try to achieve economies of scale for exports.

With respect to increased efficiency and cost reduction, Honda atlas has introduced in house and local manufacturing of high tech machine accessories and fixtures. Tool regrinding shop has been initiated to utilize dead stock and utilize unused items. The company also aims to continue with process automation at the Frame Assembly Line.

Steps such as Modification of outdated dies, refurbishment of old dies local manufacturing of local dies and High pressure Die Casting are all aiding in alleviating cost and improve manufacturing timeline.
The company is viciously eyeing on Re-fixing safety levels, reducing lot sizes and decreasing lead time to improve inventory management.

Given the current Economic Fundamentals of the economy marked by high domestic inflation, weakening rupee, rising interest rates, the overall politico-economic situation, the next year will be a challenging one. Historically the company has come through such critical situations successfully. Since the margins will remain under pressure, the emphasis would be on improving the manpower productivity and cost reduction, to show good results.

 

ATLAS HONDA FINANCIAL HIGHLIGHTS

 

 

 

 

 

 

Jun'07

Jun'08

9 mth Mar '09

Yr ended Mar '10

Quarter Ended Jun'10

LIQUIDITY RATIO

Current Ratio

1.29

1.31

1.25

1.49

1.35

ASSET MANAGEMENT

Inventory Turnover(Days)

43.7

43

48

31

22.25

Day Sales Outstanding (Days)

6.12

6

7

5

6.94

Operating Cycle (Days)

49.82

49

55

36

29.19

Total Asset turnover

2.07

2.4

1.8

3

2.10

Sales/Equity

5.58

6.13

4.13

6.56

2.09

DEBT MANAGEMENT

Debt to Asset(%)

63%

61%

56%

54%

59%

Debt/Equity (Times)

1.70

1.56

1.25

1.19

1.43

Times Interest Earned (Times)

3.98

4.98

2.40

10.57

10.45

Long Term Debt to Equity(%)

56%

37%

28%

28%

27%

PROFITABILITY (%)

Gross Profit Margin

9.42%

7.50%

7.00%

7.80%

7.71%

Net Profit Margin

3.33%

3.40%

1.60%

2.80%

2.80%

Return on Asset

6.89%

8.08%

3.00%

8.36%

2.42%

Return on Common Equity (Aft. Tax)

18.60%

20.70%

9.00%

18.30%

5.85%

PER SHARE

 

Earning per share

19.92

14.9

4.75

13.1

3.59


 



 
Index Closing Chg%
Arrow DJIA 17,390.52 1.13
Arrow Nasdaq 4,630.74 1.41
Arrow S&P 2,018.05 1.17
Arrow FTSE 6,546.47 1.28
Arrow DAX 9,326.87 2.33
Arrow CAC-40 4,233.09 2.22
Arrow Nikkei 16,413.76 4.83
Arrow H.Seng 23,998.06 1.25
Arrow Sensex 27,865.83 1.90





where to buy

cheap wedding dresses

online - weddingdresstrend.com


Banking Review 2013


Buy new style hair wigs at cheap price on Ishowigs.com

Annual2013/14
Foreign Debt $61.805bn
Per Cap Income $1,386
GDP Growth 4.14%
Average CPI 8.6%
MonthlyJuly-June
Trade Balance $-19.98 bln
Exports $25.13 bln
Imports $45.11 bln
WeeklyOctober 27, 2014
Reserves $13.464 bln