September 1, 2020 (MLN): Honda Atlas Cars Pakistan Limited (HCAR), often considered as the second most regarded auto company in Pakistan after Indus Motor, is facing a quite a rough patch lately, thanks to an ever-increasing competition and an ever-deteriorating dynamics within the auto industry.
If the latest financial performance was not bad enough, the company has found itself face to face with the newly launched cars by some of its competitors, namely KIA Motors and Indus Motor Company. More light on the subject has been shed by a report by Darson Securities, which states that the competition against KIA’s Sportage ALPHA whose price is almost equivalent to that of Civic (1,800CC) as well as INDU’s Toyota Yaris, is something that has been keeping the company restless.
Keeping these factors into considerations, it is very likely that the market share of HCAR may fall in the upcoming periods, causing a further decline in profitability. This is not even the worst part. The company, as per Darson’s report, does no longer hold the privilege of raising its prices in a bid to boost revenue as this could badly shake the revenue prospects. The business environment around the automobile sector is already extremely competitive and a further rise in prices could mean losing valuable customers to the rival companies.
To recall, the company had reported 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 due to lower volumetric sales during the period, which in turn was caused by lockdown restriction imposed by the Federal and Provincial Government to contain the spread of COVID-19. The gross profits of the company came down by a whopping 96% due to PKR depreciation and higher fixed costs.
The above-stated statements and predictions do not just represent the state of HCAR, but sadly, the entire sector. Each company is feeling threatened by the position and the activities of the other, whilst knowing that all of them are in the same damn leaking boat.
To further validate this, let's have a look at the quarterly performance of the entire sector. According to JS Global, the industry reported a net loss of Rs. 1,934 million as compared to the net profit of Rs. 3,155 million reported in the same period of last year.
The industry continued to suffer throughout the quarter, which also synced with the time of the lockdown. Low volumetric sales, high finance costs, and lower cash generations are some of the reasons that prevented any improvement in the performance.
Another important thing to note here is that the net losses incurred by the industry were courtesy of PSMC and HCAR, both of which reported losses during the quarter. INDU, which reported profits of Rs. 98 million (EPS: 1.25), suffered a whopping 96% decline in profitability thus further straining the sector.
While the lower auto financing rate and ‘special promotion packages’ being offered by some of the companies may boost the sentiments of the consumers, it may be very long before the impact of the same is realized on the financial performance of the sector.
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