- Gross Margins declined to 7.5% as Company wasn’t able to pass on the full impact of rising costs
- Other Expenses rose by a massive 113% owing to exchange rate volatility
Honda Atlas Cars Pakistan Ltd (HCAR) announced its First Quarter Financial Results where it posted Rs. 241 million net profit as compared to Rs. 1.05 billion in the same period last year marking a 77% decline in profitability.
Total sales revenue fell drastically to Rs. 18.7 billion as compared to Rs. 23.8 bn leading to a 21% YoY decline. The sales of the company fell despite a massive increase in the car prices revised during the year.
Reasons for Downfall
This steep decline in profitability is attributed to a 33% decline in sales volumes, higher input costs amid currency devaluation along with declining power to transfer the cost impacts
HCAR also posted a massive increase in Other Expenses which rose by 113% to Rs. 740 million during period ending on 31st March 2019. The rise in Other Expenses may primarily be attributed to fluctuations in the Exchange Rate impacting the inventories.
Outlook for Honda Atlas Car
The demand for auto is expected to fall by average 15% in this year due to a 50% price increase during the year as Rupee has fallen by almost the same proportion (50%). Furthermore, the imposition of FED up to 7.5% across all engine capacities will also hurt sales. The interest rate hike by 650 bps in the past 1.5 years would further lead to falling in demand as Car Financing rates increase lead to a decrease in appeal.
In the medium term, the emergence of new players is expected to restrain the growth upside of existing Auto Companies including Honda. The increase in Minimum Turnover tax by 25bps in the budget will also hurt profitability going onwards.