After a sobering FY20, Indus Motors (PSX: INDU) is reverting to its past glories by recording a healthy growth in its bottom-line bolstered by a recovery in demand, fairly favourable product mix, and tight control on overheads. The company’s net profit is also buttressed heavily by the “other income” category which comprises of returns on bank deposits, T-Bills, PIBs etc. In 1HFY21, that share in before-tax profit stood at 36 percent (1HFY20: 38%) which is a pretty big chunk added to period earnings.
The company sold 82 percent more vehicles than the period last year, whereas imported CBU sales have declined. This should be good for margins, which reflects in the 2QFY21 income statement (rupee appreciation helped during the quarter), if not 1H numbers where margins dropped a smidge.
The dollar to rupee parity was down 3 percent (in 1HFY21) from Rs154 in 1HFY20 to Rs159. This reflects in the 3 percent higher (estimated) costs per unit sold. Revenue per unit sold is also up 2 percent — with stronger sales for Hilux and Fortuner, near-doubling of Corolla and Yaris sales combined, and a reduction in CBUs. Total share of Corolla and Yaris has remained 81 percent of total sales during the period while high-margin Fortuner is 5 percent of sales (1HFY20: 4%) and Hilux is 14 percent (1HFY20: 13%).
Overheads declined to 2 percent of revenue compared to 4 percent in 1HFY20 owing to a decline in distribution costs and operating expenses, even though Workers Profit Participation Fund and Welfares Fund registered a strong growth. Other income also doubled during the first half compared to last year which padded the bottom-line. The company does not have a lot of debt on its balance sheet that bodes well in times of high interest rates but doubly well in times of lower rates. Finance costs stood at only 0.07 percent of revenue (1HFY20: 0.09%) likely also improved due to higher advance receipts against bookings.
The company’s dividend payout is 61 percent compared to 44 percent in 1HFY20, signalling confidence in future earnings. Toyota buyers, due to lower borrowing costs, are likely paying less on car loans per month against last year which is attractive since multiple price hikes was starting to affect demand. In terms of competition — despite new vehicles being introduced in the market across different segments, Toyota is not losing any of its shine and lustre.
This is partly because of immense market confidence in the company flagship Corolla but also because new vehicles have not come into direct competition with Toyota cars. That may change soon as Kia launches Cerato which will compete with both Civic and Corolla while Sorento has already been launched at a lower price point against the top-of-the-line Fortuner. Kia’s performance in the market is nothing to scoff at, and it may very well capture these segments with aplomb which will result in dilution of market share.