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In a rather belated announcement, Pakistan Suzuki (PSX: PSMC) wrapped its financial year ending Dec-19 with a net loss of nearly Rs3 billion and a gross margin of 2 percent. Things are going to get a lot tougher though. 2020 has already kicked in and if demand was slowing down uptil now, the COVID-19 outbreak will make sure it has screeched to a halt.

During the period, the company phased out its long running Mehran and replaced it with a 660cc Alto which has been keeping up with the loss of Mehran sales quite well. Evidently, customers have shifted to the new model without hesitation. However, cumulative volumes for the company declined by 29 percent as it seems rising prices of cars (hiked up several times during the year due to the rupee depreciation), reducing buying power and expensive leasing costs finally caught up with customers. The exception being Alto keeping volumes running.

Surprisingly, Wagon-R which was the hottest selling car last year saw a 72 percent drop in volumes, the highest in all variants. It is possible some potential Wagon-R buyers also jumped ship to the Alto bandwagon, considering the two variants have similar price ranges and Alto was new.

Higher prices however were able to sustain the topline despite the drop in volumetric sales. The company registered only a 3 percent drop in revenue—and per unit, revenue rose by 37 percent (for the purpose of this calculation, we have not taken motorcycles into account so this number might be slightly different). Margins still dropped to 2 percent from 6 percent as devaluation stopped the benefits short. Raw material prices (steel, rubber, plastics, CKD kits etc.) whether local or imported have been more expensive.

The company kept a check on overheads and though cost of financing rose due to higher interest rates, it remains below 2 percent of revenue. The negative net margin was a blow but the real blow will come in the upcoming year as nobody can predict how soon (and if) demand will recover. In times of uncertainty, consumers will be spending on essential goods and services, and cars may be far from their mind, despite policy rate coming down a little recently.