Honda Pakistan Records 78% Profit Dip in Q2 2023

Honda Atlas Cars Pakistan Ltd. (HCAR) recently disclosed its financial performance for the first quarter, concluding on June 30, 2023.

According to a notification submitted to the Pakistan Stock Exchange, the company’s profit after tax for Q2 2023 stood at Rs. 144.9 million, marking a substantial 78 percent Year-on-Year (YoY) decline from the corresponding period of the previous fiscal year when it recorded a profit after tax of Rs. 658.2 million.

Deputy Head of Research at JS Global Waqas Ghani Said:

Main reason for this decline in gross level profitability is a reduction in sales volume resulting from hindered production. Throughout the quarter, HCAR experienced 45 days of plant shutdown due to supply chain issues arising from import restrictions.

Sales Plummet, Gross Losses Soar

The sales figures for April-June 2023 have been discouraging, plummeting by a staggering 87.5 percent to Rs. 3.77 billion as compared to the previous year’s Rs. 30.24 billion.

In the same vein, the cost of sales for Q2 2023 came in at Rs. 3.91 billion, indicating an 86.2 percent YoY decrease compared to Rs. 28.33 billion in Q2 2022. Consequently, the company faced gross losses of Rs. 148.3 million, in stark contrast to the Rs. 1.91 billion gross profit reported during the same period last year.

Rise in Other Income, Cost Reduction Measures

On a positive note, the company experienced a 71.4 percent YoY increase in other income during the quarter, amounting to Rs. 902.6 million as opposed to Rs. 526.6 million in the corresponding period of the previous year.

Amid challenging circumstances, Honda Atlas Cars Pakistan Ltd. managed to curb its distribution and marketing costs, witnessing a 42.2 percent reduction to Rs. 140 million in the period under review, compared to Rs. 242.1 million in the same quarter last year. Furthermore, administrative expenses saw an 18.2 percent dip, amounting to Rs. 271.9 million, down from Rs. 332.6 million in Q2 2022.

Mounting Financing Costs and Tax Implications

However, the financing cost of the company surged by a significant 120.8 percent YoY to Rs. 43.7 million compared to Rs. 19.7 million in the same period last year.

Additionally, HCAR’s tax payments for Q2 2023 amounted to Rs. 122.7 million, contrasting with the Rs. 436 million paid during the corresponding period of the previous year.

Earnings per Share and Market Update

For Q2 2023, Honda Atlas Cars Pakistan Ltd. reported earnings per share (EPS) of Rs. 1.02, down from Rs. 4.61 in Q2 2022.

As of the filing date, the company’s scrip at the bourse was valued at Rs. 122.2, reflecting an increase of Rs. 1.33 or 1.10 percent, with a turnover of 541,615 shares on Tuesday.

Challenges and Future Prospects

In a recent corporate briefing, HCAR highlighted that banks are opening Letters of Credit (LCs) for the auto industry, potentially boosting sales in the 2024 Market Year (MY 2024), provided that the government refrains from restricting automotive imports again.

Moreover, the company divulged its plans to introduce hybrid electric vehicles (HEVs) in Pakistan in the future. However, specific details regarding the timeline, models, and local assembly remain undisclosed.

Moving Towards Recovery

Despite facing a challenging year due to automotive import restrictions, Honda Atlas Cars Pakistan Ltd. sold 25,726 cars in MY 2023, showing a decline compared to the 37,613 cars sold in MY 2022. The company aims to bolster these figures and move towards recovery in MY 2024.