PSMC: Expected downtime

Pakistan Suzuki Motor Company (PSX: PSMC) shows a decline in the topline by 10 percent mainly due to lower sales compared to last year. The company went into an agreement with the government of Punjab to sell 50,000 units of Bolan and Ravi under the “Apna Rozgar Scheme” in December of 2014. The scheme lasted till March 2016; and resultantly the financials for the calendar year 2016 were less than rosy.

The bottom line dropped by 53 percent and margins were squeezed from 14 percent to 10 percent. Costs to sales was probably higher also because of the appreciation of yen against dollar that had a trickle-down effect on rupee—stronger yen made imports of inputs for automakers here at home more expensive.

The company sold over 133,000 units during CY15, dropping by 18 percent in CY16 - cushioned a little by the increase in sales for Cultus, Mehran, Swift and WagonR. Over 30,000 more units of Bolan and Ravi were sold in CY15, during which time the company was functioning at nearly 90 percent of the capacity.

PSMC is the only automakers of the three that has expressed interest in making heavy investments in to the auto industry if the government gives equitable benefits to it under the auto policy. Said policy is already making rounds for enticing interest from European and Korean automakers. PSMC however has offered the highest value of investment plans—nearly $460 million to set up a new plant, phase out old units and bring new cars. The famed Alto is one of the cars that the company could bring in a smaller engine.

Sources tell us that PSMC could get incentives for two years, in contrast to five years for new players. However, this has not been publicly acknowledged by the company in any announcement.

If it does materialize, this investment along with what new entrants are bringing in—Renault with Ghandhara; Hyundai with Nishat and Kia with Lucky—will be a game-changer for the auto industry as we know it. (Read our story: “Playing your cars right” for some of our projections).

In other news, the company also announced an investment for a plant to manufacture glass for automotives. PSMC will invest Rs344 million for a 40 percent stake in the joint venture with Tecno Auto Glass Limited.

PSMC’s financials may have been shaken up after the government scheme wrapped up, but the market share is still there, and a lot is looking up for the company here on.