Analyst Briefing: HCAR might increase car prices to maintain healthy gross margins

August 14, 2020 (MLN): Honda Atlas Cars (HCAR PA) held its analyst briefing on Thursday to discuss the company’s financial performance and outlook.

To recall, Honda Atlas Cars (Pakistan) Limited had declared net losses of Rs. 511 million (LPS: Rs. 3.58) for the quarter ended June 30, 2020, as compared to the profits of Rs. 241.7 million recorded in the same period of last year. The massive decline in earnings was the result of lower volumetric sales during the period, on the back of lockdown restriction imposed by the govt to contain the spread of COVID-19.

While commenting on the financial results, the management mentioned that the results reflected the difficulties for local OEMs amid shrinking margins owing to rupee devaluation and the inability to fully pass the cost increases to customers in terms of higher prices, the research by JS Global revealed.

Shedding light on the latest as well as future performance, the management of HCAR informed that it expects volumes to improve significantly in FY21 owing to improved economic activity coupled with lower interest rates.

Regarding its plans to increase volumes for a longer-term, the company has signed MoUs with banks which include HBL, BOP, MCB, and BAHL to provide various incentives and schemes to their auto finance customers.

Moreover, the company’s dealership has now increased to 57 in 23 cities and it has plans to further increase its dealer base.

According to Intermarket Securities, the management aims to maintain reasonable and healthy margins YoY. For this reason, they will be monitoring the impact of PKR depreciation vs. USD on input costs (as they have been for the past 12-18months). HCAR imports 80% of CKDs and from Thailand and is invoiced in US$.

Speaking of competition, the management believes that the introduction of Kia Sportage has not significantly affected Civic sales owing to the difference in car class and overall features. However, the company agreed that Yaris Launch is a potential threat to the City.

With the aim of reducing short term borrowing, the management is focusing on increasing sales to minimize the current inventory levels.

The company plans to operate plants on a single shift basis, as present demand does not require a double shift.

In order to achieve optimal gross margins, the company might increase car prices accordingly, in case of further adverse cost impacts such as new taxes or devaluation.

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