Auto assemblers’ profits take a plunge

[LRE]

Auto assemblers’ profits take a plunge

By Moonis Ahmed

KARACHI: The profits of auto assembling sector plunged by 61 percent in the quarter ending June 2008 as compared to the corresponding period of the last year.

In line with economic slow down, the auto assemblers (cars + LCVs only) in Pakistan showed a dismal performance in the said quarter. Declining volumetric sales amid rising costs were the main reason behind the significant fall.

The three major auto assemblers of the country, (Pak Suzuki, Indus and Honda Cars) having a combine share of 94 percent in the total auto sector sales, posted a decline of 14 percent in sales and 7 percent in profits, said Bilal Hameed an analyst at Jahangir Siddiqui Global Capitals.

Halt into auto financing facilitates, political impasse, mounting inflation and rising car prices led to a substantial decline of 14 percent in volumetric sales. Higher products prices, however, gave some support to the top line as the rupee sales fell by 6 percent only, analyst said and added that the problem is increase in cost of sales causing a 7 percent decline in gross margins for the sector.

Moreover, international steel prices increased massively in the past one-year causing raw material costs to swell. Hence, net profits for the sector declined from Rs 2.1 billion in Apr-June 2007 to Rs 828 million in Apr-June 2008, a phenomenal decline of 61 percent.

The two leading auto assemblers Indus Motor and Pak Suzuki showed lackluster performance during the last quarter. While Indus showed a volumetric sales growth of 2 percent in the quarter while Pak Suzuki’s unit sales fell by 18 percent. The companies witnessed high cost of sales as the cumulative cost per unit went up to Rs 549k in Apr-Jun 2008 as compared to Rs 456k during the same period last year. Therefore, profits fell by 51 percent and 69 percent for Indus Motor and Pak Suzuki, respectively.

Honda’s earnings up 76 percent Honda Atlas, however, posted earnings increase of 76 percent as the company improved its profits of Rs 20.2mn in Apr-Jun2007 to a net profit of Rs35.6mn in Apr-Jun 2008. Although company’s EBIT fell by 29 percent during the period, a 74 percent decline in financial costs resulted in net profit growth for the company. Government has tried to restrict luxury items purchase in order to curtail imports by imposing huge import duties. Inline with this strategy, it has also imposed 5 percent FED and increased sales tax by 1 percent on purchase of vehicles both imported and local. This is likely to keep volumetric sales for local auto assemblers under pressure. Furthermore, the rupee/yen parity and steel price scenario is not expected to improve in the near future, analyst said.

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