Suzuki skids to a stop?

Pakistan Suzuki (PSX: PSMC) has had plenty of idle time on its hands, however vexing that may be, owing to massive supply chain disruptions caused by continued import restrictions. The company has kept plants un-operational for many days since the crisis began to unfold. And it certainly shows on the financial statement. The company incurred possibly the biggest quarterly loss it ever has for the Jan-Mar period of the calendar year (1QCY23), cumulatively at nearly Rs13 billion. Last year too, the company had incurred a loss, but much smaller by sheer comparison (Rs460 million). Volumes plummeted 74 percent during the quarter year on year, dropping from some 37,000 units of passenger cars and LCVs during the period last year to roughly 9,550 units, nearly all models shrinking in double-digits. Motorcycle sales were also down 36 percent.

Demand-side factors such as higher cost of borrowing and rising still—about 40 percent of all PSMC sales are financed through formal banking channels—or ballooning prices of cars and rising still have hardly come into play as supply has been severely restricted. By comparison though, revenue per unit sold rose 76 percent during the quarter (vs 1QCY23) as opposed to costs that rose 65 percent. These may only be considered estimates since we haven’t accounted for the motorcycle plant. Nevertheless, it would seem that prices have certainly kept up with the rising costs of production. The company’s margins are certainly up from 3 percent in the quarter last year to 9 percent.

Alas, this could not stop the slippages that Suzuki eventually had in its expenses, or rather one major expense. The single biggest roadblock this quarter was the company’s finance costs that ballooned to 59 percent of revenue in 1QCY23. This was only 2 percent in the quarter last year. In rupee value, finance costs are up 12 times. With so much borrowing cost, the fall to record quarterly loss was inevitable. The company incurred exchange loss on its foreign liabilities that kept piling up as the company could not repay due to the ongoing restrictions. In fact, the company’s EBIDTA was positive at Rs1.2 billion, pushed down single handed by its finance costs. Overheads and other charges were also higher at 8 percent of revenue (1QCY22: 3%). Meanwhile, other income which uses comes to save the day also declined due to decreased bookings, down 86 percent during the quarter. There is no good news for Suzuki at the moment. The dollar crisis must ease for the company to experience any meaningful turnaround.