Pak Suzuki Motor put into reverse gear

KARACHI: Pak Suzuki Motor Company (PSMC) switched from profit to loss in first quarter of the current calendar year as earnings were driven down by a massive depreciation of the rupee and the halt to production of its popular car model, Mehran.

PSMC posted a loss of Rs980 million in the quarter ended March 31, 2019 compared to a profit of Rs904 million in the same quarter of 2018, the company announced in its financial results sent to the Pakistan Stock Exchange (PSX) on Tuesday.

In the Jan-Mar 2019 quarter, the loss per share for the automaker came in at Rs11.92 as opposed to earnings per share of Rs10.99 in the same quarter of previous year.

The rupee has weakened around 34% against the US dollar since December 2017, which has sparked inflation and hit the buying power of consumers. “Resultantly, the company had to bear the loss,” said an industry expert on condition of anonymity.

Two major competitors of the company, Indus Motor and Honda Atlas Cars, were able to easily pass on the impact of rupee depreciation to their high-end customers, who had a higher buying power, while PSMC could not do the same due to the weak buying power of its targeted customers, who largely purchased cheaper cars, said the expert.

According to a Topline Securities’ report, “the decline in profitability was mainly due to the depletion in gross profit margins by 5 percentage points year-on-year to 3% (a 25-quarter low) amidst rupee devaluation, which considerably increased the company’s cost of doing business. However, its impact to consumers was passed on gradually.”

“The company has recorded an eight-year-low gross profit,” the expert pointed out, adding it was because the company borne an additional cost and passed on just 65% of the extra cost to its customers.

Contrary to the net earnings, the company’s revenues increased to Rs34.5 billion in the first quarter of 2019 against Rs31.5 billion in the same period of 2018.  However, in terms of volumes, sales of the company fell in the quarter.

Sales value increased 9% year-on-year due to multiple price hikes while volumes were down 4%, according to Topline Securities. A notable decline was noted in sales of Suzuki Mehran, which were down 24% year-on-year. The car model is now being replaced by newly launched Alto 660.

“Many people lately lost interest in Mehran as the car had not very attractive resale value, but its replacement has been equipped with new features,” said the expert.

Moreover, PSMC’s cost of sales increased to Rs33 billion in the Jan-Mar 2019 quarter compared to Rs29 billion in the same quarter of previous year.

Finance cost went up 5.5 times, rising from Rs73 million to Rs327 million. The jump was due to increase in borrowing and interest rate, which swelled 500 basis points to 10.75% since January 2018, said Topline Securities. Furthermore, the administrative cost rose 26% year-on-year.

The company booked tax expenses of Rs452 million in Jan-Mar 2019, which was equivalent to 1.3% of the turnover. In comparison, it had recorded tax expenses of Rs415 million in the same quarter of 2018. PSMC’s stock closed at Rs248.33, down Rs12.57 with turnover of 751,100 shares at the PSX on Tuesday.