Small cars steal the show

Pakistans largest automobile maker Pak Suzuki Motors has announced its result for the 3rd quarter of 2011. The result looks quite impressive as the top line shows a massive increase, but a lot more lies behind numbers. After analyzing the figures thoroughly, one realizes that the numbers aren as impressive as they look. The unit sales of cars and two wheelers increased by 42.5 percent in the 3QCY11 as compared to the same period last year. This phenomenal increase in the 3QCY11 was primarily due to the deferment of sales in the last month of the 2QCY11. Governments decision to reduce sales tax from 17 percent to 16 percent and to abolish the special excise duty of 2.5 percent on cars led to postponement of purchases by the customers. Another element which played a key role in this increase was the purchases made under the yellow cab scheme. According to an estimate, roughly 4,600 units sales were deferred in the last month of 2QCY11. Out of the 31,921 units sold in the 3QCY11, 4,600 units were due to the deferment and 1,500 units were from the yellow cab scheme. The gross profit margin for the company has jumped from 2.93 in 3QCY10 to 4.14 in 3QCY11; this increase is mainly due to the passing on of the impact of increase in prices of the raw material and yen appreciation. Having almost no competition in the small car segment, the company has the liberty to increase car prices when needed, but PSMCL is passing on the increase in cost to customers in a staged manner. That is why on quarter on quarter basis there is a decrease in GPM from 4.4 percent in 2QCY11 to 4.14 percent in 3QCY11, reflecting the fact that company did not fully pass on the increase in cost of manufacturing due to appreciation of yen to an all time high level to its customers, and a further increase in prices in the fourth quarter is on the cards; given the raw material price increase persists. The reduction in dealers premium on car sales in October shows that the demand for cars is declining, therefore the outlook for the last quarter is modest and the sales are expected to stick to a level of roughly 22,000 units. PSMCL has almost no competition and hence is expected to perform well as price increase of its cars has insignificant effect on their demand since the customers don have many substitutes. Pak Suzuki Motors ============================================================================= (Rs mn) 3QCY11 3QCY10 chg ============================================================================= Turnover 15,297 9,572 60% Cost of sales 14,663 9,290 58% Gross profit 634 281 126% Gross profit margin 4.1% 2.9% 41% Distribution & administrative expenses 228 190 20% PAT 392 108 263% EPS (Rs) 4.77 1.32 ============================================================================= Source: KSE notice