Honda Atlas mired

Although FY11 signed off on a positive for the automobile sector, with industry sales for passenger cars soaring up by 18 percent over the units sold during the last year, the 1st Quarter for HCAR was extremely subdued, even more so when compared with major competitors in the market.
Still reeling from the production disruptions that resulted from the flood in Thailand last year, Honda Atlas supply chain is currently in process of recuperation, and having managed to post a 93 percent month-on-month growth in sales during Jun12, at first glance seems to be on the right path once again.
However, the companys latest results for the first quarter ended June 30th 2012 paint a dismal picture, with the manufacturing giant struggling to grapple with rising costs amid exorbitant fuel prices and inflation.
The increase in sales revenue during 1QFY12 due to delivery of cars on order backlogs for City and Civic has been offset by the steep rise in operating expenses, which rose to Rs.207 million up from Rs.41 million recorded during the same period of last year.
These huge losses come mainly as a consequence of hefty exchange losses which started climbing up last year, clocking at Rs.217 million at the end of March 2012. The exchange rate disparity also meant that prices for cars were raised, with price variations ranging from Rs.30,000 to Rs.400,000 across various models.
Although these increases have managed to raise the gross profit margin to 1.7 percent, it still remains significantly below industry averages with major competitors PSMC and Indus Motors reporting a GPM of 5.21 and 7.9 percent, respectively as of the period ending March 2012.
A birds eye view of the scenario shows that overall HCAR has mostly been unable to translate factors such as rising remittances and agricultural incomes into profitability unlike its competitors.
Despite Pakistans weak economic output, and the multitude of difficulties facing the manufacturing industry, other major market forces in the automobile industry have managed to enjoy healthy growths during the last quarters on the back of factors such as innovation in product lines and a history of consumer confidence.
At this stage, it is essential that Honda Atlas focuses exclusively on controlling its running expenses and tries to maximise product innovation battling with both internal and external pressures at the same time.
Last years supply chain discontinuations aided by rising production costs which could not be entirely passed on to the consumers meant that the firm fell far behind in the game and as of now, the outlook for the firms future profitability remains challenging, with major financial revamping required to bring it back to its feet.

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Honda Atlas Cars

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(Rs mn)                 1QFY12  1QFY11     chg

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Sales                    5,965   4,612     29%

Cost of sales            5,863   4,555     29%

Gross profit               102      57     79%

Gross profit margin      1.71%   1.24%

Other operating income      13      59    -78%

Other operating expenses   208      36    476%

Loss from operations       174      16    999%

Loss after taxation        221      51    333%

Loss per share (Rs)      -1.55   -0.36

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