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Saturday, June 19, 2010
By The News Pakistan
KARACHI: The automobile sector has started to show profits amid sharp recovery in car sales, but the Honda Atlas has not yet come out of the woods, said a brokerage house report on Friday.
The company is in losses for the last seven quarters, primarily due to negative gross margins, said a Topline Securities report.
The financial year of Honda Atlas that ended on March 2010 was its worst year in terms of profitability as the company posted a record loss of Rs6 per share versus loss per share Rs2.8 last year, the report said.
Honda Atlas is the second biggest car assembler in 1300cc car segment, having market share of 10 per cent in total car sales.
For its financial year ended March 2010, the company posted record losses of Rs852 million. The losses mainly arrived at gross levels due to higher cost of production coupled with no change in volumetric sales compared to last year.
Though sales revenue increased by 12 per cent to 15.8 billion, cost of production increased by 15 per cent, which turned gross margins to negative 1.5 per cent against last year gross margin of 1.2 per cent.
The company’s volumetric sales remain stagnant with 12,305 units sold in Apr-Mar 2010 versus 12,345 units last year. Also, the company lost its market share from 11 per cent to 10 per cent, despite its new sedan model in the 1300cc category.
Besides, gross losses, increase in financial expenses by 104 per cent to Rs455 million also affected bottom-line of the company. With continued losses from last year, the company availed short-term finances to meet working capital requirements. Moreover, the company also availed long-term loan of Rs1.3 billion. However, by the end of March 2010 the company was able to reduce short-term borrowings, which will provide some support to the net profits.
The company incurred capex of Rs1.9 billion for the launch of new model, which was mainly funded through long term financing.
Thus with no growth in volumetric sales yet, higher depreciation cost and financial expenses would be the key factors in determining overall profitability of the company.
The growing car demand - up by 39 percent in 11 months of 2009/10 - has allowed car assemblers to pass on any abnormal increase in cost to customers. However, it is believed that company’s pricing would be dependent upon larger players like Indus Motors in 1300cc segment, the report said.
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