Triggered by low input cost and advance payments from customers, net profits of two of the countrys top automakers surged manifolds in the last quarter with Indus Motors clearly in the lead.
Although, cost of goods sold rose due to higher capacity utilisation that nearly doubled during the period -- 40 percent in case of PSMC and 80 percent in INDUs - the industrys margins improved quite significantly, mainly on account of 50 percent drop in international steel prices and partly due to an average 10 percent increase in sale price of different makes.
The industry also avoided a significant amount of exchange losses by switching to USD for a majority of its CKD payments. With the rupee deprecating 29 percent against the Yen and 12 percent against the greenback, automakers chose to price their imports in the latter.
The gradual recovery in steel prices and depreciating value of rupee against yen has led many to believe that worst is not yet over for domestic car manufacturers. But perhaps this is not exactly the case, as assemblers are sitting on a pile of six to eight months of steel inventory at current prices, which provides them a cushion against further hike in commodities. As for the exchange losses, the industry will continue mitigating their loss stemming from the strengthening Yen by paying their foreign suppliers in the US dollar.
Yet, while so far both the leading car assemblers had been relying on cost reduction measures to maintain their gross margins and will continue to do so in the next two quarters, a slight increase in price is but inevitable due to resurgence of global steel bulls.
Indus Motors raised the tag late last quarter and so did Honda Motors -- and it will not be long before PSMC is forced to increase prices at least a bit, despite its consumers being more price sensitive than that of high end car makers. If PSMC chooses not to, it would put its margins into pressure or if it does it will have to take a hit on its sales.
Despite these issues, however, PSMC can expect much from its plans to launch the new 1300cc car, Swift, by November 2009. The model, which has already been launched successfully in various countries, is expected to be priced around Rs 1 million - an effective price for high end segment. Unlike Liana, Swift could help increase the companys market share in the 1300cc-1600cc category, and can partially release the pressure on its overall margins.
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PSMC P&L INDU P&L
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Rs (mn) 3QCY09 3QCY08 (+/-)% Rs (mn) 3QCY09 3QCY08 (+/-)%
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Sales 8,033 7,644 5% Sales 11,936 5,160 131%
COGS 7,858 7,667 2% COGS 10,923 4,984 119%
Gross profit 176 -23 N.A Gross profit 1,014 176 477%
Gross Margin 2% -0.3% N.A Gross Margin 8% 3% 149%
Dist & Admin Exp 196 126 55% Dist & Admin Exp 168 214 -22%
Finance cost 4 1 196% Finance cost 9 1 597%
Other Income 151 214 -29% Other Income 423 104 305%
L/PBT 116 59 98% L/PBT 1,167 57 1939%
Taxation 66 21 219% Taxation 408 9 4372%
L/PAT 51 38 33% L/PAT 759 48 1477%
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L/EPS(Rs) 0.62 0.46 L/EPS(Rs) 9.66 0.61
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Source: Company Result
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