Motorcycles are finding back their groove after a fairly long period of market lull due to covid and covid-related lockdowns. In this time, Atlas Honda (PSX: ATHL) has also managed to sell more two-wheelers than it ever has before racking up the highest revenues in the 9M period thus far. The current marketing year for the company (that ends in March) has been phenomenal, though the company’s margin profile remains stagnant.
In the nine-months ending Dec-21, Atlas Honda recorded a 54 percent growth in its top-line partially owing to a volumetric growth of about 39 percent. The rest of the credit goes to price increases and a solid mix of sales. Estimated revenue per unit sold increased 11 percent during the period which demonstrates shows the net impact of higher prices on the revenue.
The company’s gross margins remain in the single-digits at 7 percent, even though the company boosts highly of localization. This does not shield the company from rising domestic or global inflation. Much of the raw material being consumed by parts and vendor makers is imported too. Cost of production therefore depends largely on imported inputs and raw material that are sensitive to exchange rate movements and global commodity prices. Estimated cost per unit sold during the period increased 10 percent.
The company earned a before-tax profit of Rs5.6 billion, 24 percent of which was supported by “other income” component. Last year, other income was 31 percent of the before-tax profits which is a pretty significant contribution. The company pays nominal finance charges to the bank and incurs nominal overheads as a share of revenue i.e., administrative and selling expenses are 2 percent of revenue during the period under review. Production costs therefore remain the heavy-weight weighing down the balance sheet.
Honda also announced its first price increase for 2022 which came into effect from Feb 1 and it looks like prices will continue to be raised as the company grapples with higher costs of production and shipping/transportation. The demand for motorcycles meanwhile is staying strong both in urban and rural settings.
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