2011 is considered as the year of consolidation for the passenger car manufacturers of Pakistan. As in the passing year industry saw a spike in demand for all car segments. Car manufacturers attributed the surge in demand to the increase in remittances and good agricultural income. However, car manufacturers had to face the brunt of high inflation and high foreign exchange risk. In addition they also had to face power disruptions and increase in prices of fuel, which resultantly affected their cost of production. Consequently, the auto and allied sectors had to work hard to realise profits. The latest result, posted by Honda for the 3rd quarter ending with December 31st 2011, shows that it couldn fight out these internal and external pressures. The Company experienced a 10 percent decline in sales in 3Q2011 compared to the same period of last year and posted losses of Re.0.81 per share. The decline in sales is to some extent attributed to the supply disruptions due to the floods in Thailand. The production of Honda Atlas Cars Pakistan came to a complete halt in December; the Company in anticipation of slowdown reduced its production in November; as it wanted to avoid a complete halt. The sales had fallen from a monthly average of 1,400 units to 897 units in November and 81 units in December. The gross margin in 3Q2011 stood at 0.4 percent, a slight improvement compared to the same period last year. Despite improvement, the margins are very low compared to the industry average. While talking to BR Research, a Company official said that the high depreciation of assets and the constantly worsening rupee/yen parity are the major culprits behind the increase in the cost of sales, which consequently is eating the profitability margin. The effect is so strong that despite a price increase of roughly Rs.60,000 to Rs.70,000 per unit, Honda Atlas wasn able to make much difference. The operating profit also had to bear a lot of pressure, as other expenses raised from Rs.7million in 3Q2010 to Rs.75 million in 3Q2011. The major portion of the other operating expenses is the foreign exchange loss. The only thing to cheer is the other operating income which rose by 114 percent in 3Q2011 compared to the same period of last year. This income is backed by handsome earning from Companys fixed income investments. Despite the bad performance in this quarter, the outlook for the coming quarter is better, as full production is expected to start from February. In addition, slight increase in demand is expected as purchases of December would be made in the coming months
==================================================== Honda Atlas Cars ==================================================== (Rs mn) 3Q 2011 3Q 2010 chg ==================================================== Sales 3776 4201 -10% Cost of sales 3760 4216 -11% Gross profit 15 -14 -207% Gross profit margin 0.40% -0.33% -219% Other operating income 30 14 114% loss after taxation -115 -119 -3% Loss per share (Rs) -0.81 -0.84 -4% ====================================================
Source: KSE notice
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