Honda sells more yet makes loss

Just like Pakistans uneven roads that usually damage shock absorbers of cars enough to frustrate car drivers, perennial inflationary pressure and economic shocks provide the same uncomfortable journey to local auto manufacturers.
Honda Atlas Cars (Pakistan) Ltd., assembler of the two high-end cars Civic and City, shares the same fate. Despite the stride in sales, HCAR wasn able to lift its bottom line to the green during the half year ended September 2010, after facing two consecutive loss making years.
The company reported a net loss of Rs156 million for the period, on the heels of higher cost of production, along with low capacity utilization.
Driven by improvement in economic indicators - a combination of a low base effect, rise in remittances and better agriculture income - HCAR saw 41 percent growth in volumetric sales to 8,142 units during the half year 2010 over the same period a year earlier.
In keeping with volumetric growth, HCAR clocked a revenue growth of nearly 46 percent. But, the company did not seem to get much benefits of scale as its gross profit margin despite being positive remained too low to absorb operating expenses.
The usual suspects behind dull gross profit margin are the continuous adverse currency movements, high commodity prices and low localization level.
Yen and dollar alone have strengthened by an average 13 percent and 5 percent respectively against the rupee during the period under review. On the other hand, metal prices, such as steel, copper, tin and aluminum have risen during past few months.
It seems that better cost control management and cost efficiency measures adopted earlier, helped the firm record lower administrative and distribution expenses as a percentage of sales, Finance cost was lower owing to the repayment of the short-term running finance and reduction in long term bonds.
Amid rising cost of production and chances that rupee will further weaken against yen and dollar, the companys profitability hinges on how quickly its sales level reaches the breakeven point.
Though, heavy floods during this monsoon have weakened the sales outlook, it is not that grim for high end car sellers, primarily HCAR, since higher agriculture commodity prices, such as cotton, rice and sugar, will continue to support demand for Civic and City during the year.

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Honda Car (P&L)

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Rs(mn)               1H-2010   1H-2009    chg

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Sales                 10,660     7,326    46%

Cost of sales         10,517     7,489    40%

Gross profit             143      -163     NA

Gross Profit Margin     1.3%     -2.2%     NA

Administrative exp        82        69    19%

Finance cost              76       277   -73%

Loss after taxation     -156      -536   -71%

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Source: KSE notice

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CELLULAR SUBSCRIPTION (As on Sep 2010)

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                 Subscribers    Market

                        (mn)     Share

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Mobilink                31.4     31.4%

Telenor                 23.8     20.2%

Ufone                   20.2      7.4%

Warid                   17.2     23.8%

Zong                     7.5     17.1%

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TOTAL                  100.1

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Source: PTA

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