PSMC: eyeing yellow cabs

Despite the launch of the new WagonR model, Pak Suzuki Motor Co’s (KSE: PSMC) earnings remained subdued during the Apr-Jun period, owing to higher payables. The latest company results show that gross margins posted an increase of 50 percent for the half-year and over 34 percent for the quarter ended June 2014.
However, distribution costs and substantial tax payables constricted the impact of increase in volume sales for the company, bringing down net margins by 10.46 percent for the half year and by 25 percent during the quarter.
PSMC’s market shares also fell slightly during FY14. In the 1,300cc-and-above engine category, the company’s share fell from 10.45 percent to a little over 9 percent, while the company also lost marginally in the 800cc-1,000cc category.
According to Sajjad Hussain, Research Analyst at BMA Capital, PSMC’s volumes rose by 1.9 percent year on year during 1H CY14, while on a quarter-to-quarter basis, there was an increase of 10.3 percent during 2Q CY14. Volume increase during the quarter, as stated above, has largely resulted from sales of the new WagonR, which replaces the Suzuki Alto.
Barring the former engine category, PSMC remains the only local assembler in the market of 800cc-1,000cc, capturing the entire pie. The only competing rivals now left should be refurbished imported vehicles, wherein the budget for FY15 comes in as handy facilitation.
Local industrial players are to benefit from the increase in duties and taxes on imported used vehicles by up to 10 percent (see BR Research column, ‘An auto-friendly budget’, dated June 10, 2014). Growth in margins for local assemblers will also be augmented by the cut in corporate tax rate and appreciation in the value of rupee against yen.
The most notable catch for PSMC, however, would be the Punjab Yellow Cab Scheme, with a target of 50,000 cabs to be provided over the year. Given the Sharifs’ devotion to yellow cabs, PSMC should certainly not be enthusiastic about the unfolding political mayhem in Punjab that is keeping the government occupied.

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PSMC - Key financials

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Rs (mn)               1HCY14     1HCY13      chg

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Turnover               29107      26880       8%

Cost of sales         -26884     -25400       6%

Gross margin            7.64%     5.50%        -

Distribution cost       -410      -241       70%

Operating margin        5.38%     5.24%        -

Taxation                -424       -15     2650%

Net margin              3.56%     4.30%        -

EPS-Basic (Rs)         12.58     14.05      -10%

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Source: Company reports