The auto assemblers witnessed a massive decline in the profitability in the quarter ended on September 30, 2008 as the four companies posted a loss of Rs 342 million against net profit of Rs 1,440 million earned in the corresponding period of last year.
The volumetric sales fell by 44.7 percent as the net sales of the industry stood at Rs 16,798 million in this period against Rs 27,894 million in the same period of last year.
"Falling sales with rising prices, inflationary pressures in the economy, high cost of car financing and unstable political situation with rising costs due to increasing steel prices and depreciating rupee during the period severely impacted the gross profits of the industry", Arif Zafar, an analyst at JS Global Capital, said.
Cumulative gross profits saw a huge fall of 98.2 percent and stood at Rs 47 million only. Resultantly, gross margins fell by 880 bps from 9.1 percent to 0.3 percent. The top 2 leading car assemblers--Pak Suzuki Motor Company and Indus Motor--barely posted positive earnings for the period under review. Pak Suzuki suffered gross losses of Rs 23.4 million as it was unable to pass on the increase in the cost amid rising international steel prices and appreciating yen.
However, with reasonable other income, which though fell by 12 percent, it covered the gross losses, helping Pak Suzuki post positive earnings of Rs 38.2 million. Indus Motor posted a profit Rs 48.1 million, a fall of 95 percent compared to the same quarter of last year. It was also unable to sustain net sales, which fell by 52 percent, compared to corresponding period of last year, while a decline of 65 percent in other income also contributed massively in the fall of the profitability of the company.
The quarter July-September proved to be a nightmarish quarter for the relatively smaller auto assemblers. Honda Atlas Cars and Dewan Farooque Motors both posted negative earnings for the period. Dewan Farooque suffered gross loss of Rs 274.1 million as its net sales declined by 78 percent.
However, Honda Atlas fared better as it posted gross profit of Rs 168.3 million, an increase of 3.4 percent. This was possible as Honda Atlas was able to pass on the increasing costs through higher increases in prices. However, Honda Atlas posted a loss after tax of Rs 87.7 million for the period due to massive surge in operating expenses manifold over the corresponding period last year.