Being a leader in the market for commercial vehicles, HinoPak (PSX: HINO) takes up nearly 45 percent of the market share and while truck demand has been strong and growing (33% during this period), demand for locally assembled buses has plummeted over the year and a half probably due to higher imports in the segment. This has affected net growth for all commercial vehicle manufacturers and HinoPak is no exception. A 13 percent net growth in sales brought forth an 18 percent growth in revenues which are reasonable and in-line with expectations.

During the April-March 2018 period, bus sales dropped by 57 percent but since buses are 20-22 percent of the total sales mix, HinoPak’s top-line was not affected as much. Between Dec 4, 2017 and Mar 30, 2018, the rupee depreciated by 9.5 percent against the dollar; by 9 percent against the Thai Baht; and by 16.4 percent against Japanese Yen. Those auto players importing from Japan and Thailand saw their margins drop dramatically. Meanwhile, steel prices also rose during the period by nearly 30 percent year-on-year. But Hino’s lower dependence on expensive imported parts allowed margins to stay on the shore.

Finance costs for the company include exchange losses and bank charges, which grew during the year becoming 3 percent of the revenues against 0.4 percent last year. The company managed to tighten the purse strings on other indirect costs, which fell from 4.2 percent to 3.7 percent of the revenues. However, higher than expected finance cost likely due to higher borrowing and exchange losses brought net margins down to 4 percent in April-Mar18 against 5 percent this period last year.

There are a handful of new commercial vehicle manufacturers or assemblers investing in Greenfield or Brownfield facilities, yet others are coming in with CBU imports. There will be a lot more players operating in the industry over the next five years during which time CPEC trade activity may also see some momentum. Analysts believe this is what will be driving the commercial vehicle demand, though growth in the industrial and manufacturing sectors, the need for more sophisticated logistics, retail and trade activity are the main drivers of the current growth we are witnessing in the segment.

Could what happened to buses, happen to trucks too? More players may pose a threat to Hino’s market share, depending on how fast new players localize, how effective their marketing and outreach is, whether they will have a dealer network to reach markets beyond the major ones and would they compete with existing players on price or quality.