Despite a six percent drop in total sales for Indus Motor Company Limited (PSX: INDU) in FY17 year on year, the company witnessed a three percent increase to its top-line. Per unit sales in FY16 was Rs1.7 million while in FY17, it was Rs1.8million. Profits rose by 13.5 percent even when INDU’s market share dropped to 28 percent from 29 percent in FY16 as Honda cars rose high. The company paid a final cash dividend of 350 percent and a combined interim dividend of 800 percent. 
The company associates its strong bottom-line to a change in its sales mix with the launch of second generation Toyota Fortuner and 8th generation Toyota Hilux Revo. Sales for the latter more than doubled over the past fiscal year.
The company for the most part has managed to overcome the negative effects of yen appreciation against the greenback that was supposed to have increased the cost of imports. Fortuner and Hilux are both high margin products which may have contributed to the increase in gross margins to 18 percent from 16 percent in FY16.
The company announced that it would be investing Rs4 billion to expand its capacity to 75,000 units—currently the company is running at around 90 percent of its capacity. Reaching high capacity utilization already together with the projected demand for cars over the next few years make a strong case for the expansion.
INDU also needs to keep in mind the competition it will be seeing to its flagship variant Corolla despite its appetite in the market. New players entering the playing field will be introducing new models, particularly in the higher engine compact car segment, which will be in direct competition with Corolla and Honda cars. They are expected to gain market traction quickly, especially if we are talking about European cars like Renault and Audi known for their high quality.
Many naysayers are not entirely sold on the potential success of the new ventures, particularly Lucky (with Kia) and Nishat (with Hyundai) who have no prior engineering and automotive experience. They will be competing in a market which has been dominated by three seasoned players for decades.
It remains to be seen how that pans out. But if they are successful, carmakers like INDU who enjoy high profits despite drop in sales will have to adjust their production and pricing models accordingly.
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