HCAR on downhill drive

Honda Atlas Car is still moving at a sluggish speed. The firm reported a loss of Rs 1.09/share on Wednesday after its gross margins turned negative during the first quarter ending June 2009, while higher financial charges also weighed on its sliding sales revenue. The negative result pushed HCARs stock price by 1 percent to Rs 18.02 by the market close.
HCARs revenues were slashed by 13 percent owing to sharp decline in volumetric sales during the period, as its market share squeezed to 21 percent from 29 percent in the previous quarter. Meanwhile, the companys gross margins turned negative - mainly due to higher cost of production, which was hampered by depreciating PKR against Yen. HCAR still imports 45 percent of its CKD parts from Japan that makes the firm vulnerable to exchange rate fluctuations.
Finally, HCARs financial charges damaged its bottom line further, as the firm started to payoff interest on Rs 2.5 billion borrowed for working capital requirements in the previous quarter. In addition, it also began paying off mark-up on its loan worth Rs 2.1 billion taken to modify its plant for new models launched earlier this year.
Going forward, HCARs premium pricing is likely to restrict its volumetric growth and will remain a cause of concern in the current economic environment. According to consensus estimates, HCARs profitability is likely to remain under pressure over the next six months owing to contained top line growth. However, given that the firms recently launched City model has started to show momentum, there are some who havent called it quits just as yet.

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HCAR P&L

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RS (MN)     1Q-JUN09     1Q-JUN08     ()%

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Sales          3,224        3,707       -13%

COGS           3,253        3,566        -9%

Gross profit     (30)         140      -121%

Gross Margin     -1%            4%     -124%

Other Income      10           27       -65%

Finance cost     159           19       727%

L/PBT           (250)          55      -553%

Taxation         (94)          20      -578%

L/PAT           (156)          36      -538%

L/EPS(Rs)      (1.09)        0.25      -536%

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