INDU in a stew

With auto sales not picking up steam, Indus Motor Companys profits in the first half of the fiscal year fell by 34 percent on a year-on-year basis, bringing net profit margin down to 3 percent, around 2 percentage points lower compared to the last year.
Despite making huge strides to boost sales, INDU realised a single digit growth in the volumetric sales (CKD and CBU) as the company sold 22,903 units in 1HFY11 compared to around 21,300 units it sold in 1HF10. The volumetric growth helped the company achieve an 11 percent revenue growth during the period.
The main culprit behind the dull appetite for cars is the lethargic economic condition, impact of floods, rise in car prices and relaxation in import policy of used cars. The government relaxed the used cars policy in December. However, many buyers delayed bookings throughout the first half of the fiscal year as the market had been expecting the import policy to be relaxed in FY11.
On top of that, continued pressure from government officials to decrease car prices made it difficult for auto manufacturers to pass on the inflationary pressure to buyers. The yen alone has strengthened by an average 12 percent in the first half of the current fiscal year compared to the same period last year. Therefore, growth in revenue didn translate into better margins, as gross margin squeezed by 3 percentage points to 5 percent.
Other operating income declined on account of lower cash balance. Cash and bank balance on the companys balance sheet reduced to Rs 3.3 billion as of 31st December 2010 from around Rs15.7 billion as of 30th June 2010.
With the economy in shambles, along with the relaxed used cars import policy, demand for locally-manufactured new vehicles is expected to remain low during the second half of the fiscal year. However, higher proceeds from Rabi crops and remittances are likely to cushion the market appetite for new cars.

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INDU

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Rs (mn)                   1HFY11    1HFY10       chg

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Revenue                   26,828    24,079       11%

Cost of sales             25,427    22,201       15%

Gross profit               1,401     1,878      -25%

Gross margin                  5%        8%      -33%

Administrative exp           201       177       14%

Distribution exp             274       194       41%

Other operating  income      760       857      -11%

PAT                          907     1,366      -34%

EPS (Rs)                    11.6      17.4      -34%

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Source: KSE notice