For any auto manufacturer that has witnessed stellar growth in demand for its cars, it is reasonable to expect improvement in margins as well.
Unfortunately, thats not the case with Pakistans leading automaker - Pakistan Suzuki Motor Company. Despite the stride in sales, PSMCs net profit margin during the first nine month of the current year didn pick up the steam and remained flat at around 1.2 percent.
A combination of a low-base affect, rise in remittances, better agricultural income and improvement in manufacturing, helped PSMC to sell 58,464 cars and light commercial vehicles against 34,694 units in the same period a year earlier.
Though the companys top line also registered growth, mainly in volumetric sales, higher cost of production along with low capacity utilization of around 51 percent made it difficult to realise the improvement in gross profit margin, which also remained intact at around 3 percent.
The main culprit behind the dreary margins is adverse currency movements - the Yen alone has strengthened by an average 12 percent in the first three quarters of CY10 compared to the same period last year. Moreover, the burgeoning cost of locally manufactured equipments, on the heels of inflationary pressures and rising input costs, has also taken its toll on the industry.
Flat margins indicate that growth in demand has done nothing towards improving margins. As the yen looks set to appreciate further against the rupee in the quarters ahead, and with local assemblers not in a position to further absorb currency exchange losses, it will be rather difficult for the company to pass on the inflationary impact to buyers, since its sales portfolio is highly tilted towards price-sensitive, low-end cars.
On top of that, with the entire economic scenario in shambles, vehicle demand is expected to remain dull during the fourth quarter.
As there is no end in sight to the mushrooming commodity prices, the way forward for the local industry is to further invest in localisation, as, on one hand, it will mitigate the impact of unfavourable currency movements, and on the other hand, eradicate the doubts of transfer pricing.
Otherwise, the auto industry is left with no other feasible option than to force the government to reduce the import duty on CKDs since, on an average, the industry is paying nearly one third of its revenue to the government in the form of various direct and indirect taxes and duties.
However, the increase in assembling benefit will also encourage other small manufacturers to set up assembling plants in Pakistan which will increase competition and reduce car prices.
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Meezan Bank Limited (MEBL)
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9MCY10 9MCY09 Change 3Q10 3Q09 Change
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Return earned 9,038 7,303 23.8% 3,043 2,424 26%
Return expensed (4,696) (3,606) 30.2% (1,677) (1,274) 32%
Net Return Income 4,342 3,696 17.5% 1,365 1,150 19%
Provisioning (848) (1,304) -35.0% (373) (540) -31%
Net Return income
after provision 3,494 2,392 46.0% 992 610 63%
Other income 1,518 1,203 26.2% 577 512 13%
Operating revenues 5,860 4,900 19.6% 1,943 1,662 17%
Other expenses (3,385) (2,515) 34.6% (1,120) (872) 28%
Profit after taxation 995 654 52.1% 276 145 90%
EPS (Rs) 1.42 1.07 0.40 0.24
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Source: KSE notice
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PSMC
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Rs (mn) 9MCY10 9MCY09 %chg
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Revenue 31,502 17,780 77%
Cost of sales 30,516 17,266 77%
Gross profit 986 514 92%
Gross margin 3.1% 2.9% 8%
Distribution cost 159 161 -1%
Administrative exp 473 345 37%
Other operating income 442 431 3%
PAT 388 212 83%
EPS (Rs) 4.7 2.6 83%
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Source: KSE Announcement
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