Pak Suzuki Motor Company records highest ever quarterly loss of Rs12.9bn

Pak Suzuki Motor Company Limited (PSMC) recorded its highest-ever quarterly loss of Rs12.9 billion in the first three months of 2023 owing to decrease in sales and high finance cost. The car manufacturing firm had booked a loss of Rs460.227 million in the same period last year.

As per PSMC’s latest financial results for Q1 2023 (Jan-March), the automaker posted a loss after taxation of Rs12.915 billion, according to a notice sent to Pakistan Stock Exchange (PSX).

PSMC’s revenue for the period was Rs21.839 billion, down by 54% compared to Rs47.736 billion recorded in the same period last year. Revenue also declined by 64% on a quarter-on-quarter (QoQ) basis, led by 74% year-on-year (YoY) and 70% QoQ fall in unit sales of the company.

“The result came below industry expectations due to higher than expected finance cost,” said Topline Securities in its note on Tuesday.

PSMC’s finance cost – which includes exchange loss, markup on late delivery, and demurage & detention charges – was up 12x YoY and 3x QoQ to Rs12.8 billion in Q1.

The Pakistani rupee has depreciated by over 20% against the US dollar during this time, while inflation averaged at over 31% during the same period.

“Gross margins for 1Q2023 arrived at 9.1% slightly lower than the previous quarter’s of 9.8% despite hike in car prices.

“The automaker’s distribution and marketing expenses were up 20% YoY while falling 18% QoQ to Rs878 million “in line with decline in volumetric sales and higher inflation,” added Topline Securities.

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Meanwhile, PSMC’s ‘other income’ also fell 86% YoY and 87% QoQ to Rs74 million in Q1.

The company reported a Loss Per Share (LPS) of nearly Rs157 in 1Q2023 against an LPS of Rs5.6 in 1Q2022 and LPS of Rs47in 4Q2022.

Auto sector woes

The country’s auto sector, hugely dependent on imports, have been hit hard by the government’s decision to curb imports and restrict issuance of Letters of Credit (LC). Additionally, higher finance cost and massive increase in car prices have also reduced demand from consumers.

Pakistan’s auto industry reported car sales of 9,211 units in March, 62% higher on a month-on-month basis but still 66% lower compared to the number in March 2022, according to data shared by Pakistan Automotive Manufacturers Association (PAMA).

“With no immediate resolution to the issue of opening of LCs in sight, automakers are expected to suffer from lower volumes owing to both demand and supply side issues,” said JS Global in its latest report.

“We expect a cumulative decline of more than 50% YoY during FY23 extending into 1HFY24 as well,” it said.

The report expects auto companies’ margins to remain under pressure as well despite owing to an unprecedented rise in cost of production given the sector’s dependence on imports for raw materials.

“Additionally, sales tax on 1400cc+ vehicles has been increased to 25% as well hurting affordability of vehicles. To counter the impact of higher costs and taxes, automakers have undertaken multiple rounds of price hikes (4-5 times during CY23 YTD) which is expected to limit the impact of the above-mentioned to some extent.

“With concerns on multiple fronts, we expect profits in the sector to remain restricted in the upcoming quarters,” it said.