Pakistans auto industry is into its second year of recovery. Yet, earning a profit still remains a distant dream for the countrys third largest carmaker.
On Friday, Honda Atlas Cars said its revenues grew by 42 percent in the nine months ending December 2010, during which it managed to increase its sales by 37 percent to 11,185 units.
Sales of both variants, Civic and City, were overwhelming compared to the industrys total car sales, which witnessed a 29 percent growth in the same period. A combination of factors, such as the low base impact, rise in remittances and improvement in selected pockets of the economy, helped increase sales.
But with the production capacity of 50,000 units per annum, the utilisation of just one-third of the capacity continues to weigh hard on the company.
High cost of imports and low level of indigenisation exerted pressure on the assemblers margins. Yen alone strengthened by an average 13 percent during the period under review - disallowing any substantial growth in gross profits. Gross margin, however, improved slightly, but it proved too little for the company.
The company gained efficiency in other relatively low impact items such as distribution and administrative expenses. Thankfully, it also managed to lower its finance costs on the back of better cash flow management and reduction in long-term debt.
If the company continues to grow at the rate seen in the past nine months, its total annual sales will likely reach 16,000 units for the year ending March 2011, a potential growth of 37 percent over last year.
However, the projected sales will still be sharply lower than its annual average of 21,000 units sold during 2005-08 - and certainly not enough to lift its gross profits to a sustainable level.
High agricultural commodity prices, such as cotton, sugar and wheat, along with better remittance income might continue to support market appetite for Civic and City.
Although, Honda is seen largely unscathed from the recent relaxation in used-car import policy, the carmaker, which has been making losses for the last two consecutive years, has a long way to turn back into profits.
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HCAR P&L Rs(mn) Apr-Dec Apr-Dec Chg
2010 2009
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Sales 14,861 10,500 42%
Cost of sales 14,734 10,719 37%
Gross profit 127 -219 N.A
Gross Profit Margin 0.9% -2.1% N.A
Distribution & Mkt cost 106 93 14%
Administrative exp 123 102 21%
Other operating exp 95 62 53%
Finance cost 116 374 -69%
Loss after taxation 275 695 N.A
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Source: KSE notice
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