Honda to launch HRV ‘very soon’ to improve market share

August 02, 2022 (MLN): Honda Atlas Cars (HCAR) is planning to launch its new model, HRV, very soon to increase its market share during MY23, thus subsiding the much-anticipated decline in sales volume, said the management of the company during its corporate briefing.

To note, the recent import ban is likely to adversely affect business operations, going forward. However, as per the State Bank of Pakistan (SBP)’s formula, the company can import 70% of the average of the last 4 months of CKD kits import up until Sept’22.

Recently, the company announced its 1QMY23 profit of Rs658mn (EPS: Rs4.6) against a profit of Rs928mn (EPS: Rs6.5) in SPLY. This 29% YoY decline in profits was largely attributed to rising PKR dollar parity, declining foreign exchange reserves, increase in input prices such as steel, imposition of higher taxes, and interest rates.

For HCAR, around 90% of COGs are raw material, of which 70-80% are imported, taking total currency exposure to 70%. In addition, USD/JPY exposure is 70/10%, key takeaways covered by Foundation Securities noted.

The management stated that going forward the company may face a decline in gross margins to around 3-3.5% due to the depreciating PKR and increase in other production costs such as freight costs which were up by 3-4x during the year.

Moreover, the management noted that it will record the super tax in the current year. To note, HCAR has already recorded the adjustment of super tax for FY23. Whereas for the previous year, the company will record super tax periodically.

Speaking to localization levels (in parts terms) of their products, the management highlighted that City currently holds a localization rate of 70%, Civic 60%, and BRV 50%. However, in value terms, the number was reduced to 25-30% due to the absence of the auto-grade steel industry and high-end technology which requires consistent policy and heavy investment, Asad Ali, an analyst at Al Habib Capital Markets said.

As per the company, they have localized all parts which are possible to be localized in Pakistan.

Moving forward, FY23 is expected to be a tough year where a decline of 25-35% in the auto industry is on the cards.

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