HCAR suffers massive plunge in profits as it fails to pass on tax burden

January 24, 2019 (MLN): Honda Atlas Cars Pakistan Limited (HCAR)’s profits during last quarter plunged by 57.5% year on year, as the company reports profit after tax (PAT) at Rs.601.6 million, and EPS at PKR 4.21.

In a similar manner, the cumulative earnings for the April-December period in FY19 plummeted by 47.6% YoY, with net income for the period at Rs.2.7 billion (down from Rs.5.1 billion last year) and EPS at PKR 18.78.

As a result of increase in duties on key inputs, the company’s input costs rose. In addition to this, the Pakistani Rupee saw a very significant decline in value as it depreciated by 26% in this nine month period.  

In an attempt to pass on the impact of this devaluation and tax imposition, HCAR pushed up the prices of its vehicles during the last quarter (in October 2018). Consequentially, the company witnessed a decline in sales (down from Rs.21.8 billion to Rs.21.3 billion) which further translated into a drop of 3.8% in net margins for 3QFY19, that are currently at 2.8%.

In the April – December period, HCAR observed nearly 8% YoY higher sales (Rs.70.96 billion) on account of 3% increase in sales unit, but unfortunately due to duties and PKR devaluation the cost of sales (Rs.65.5 billion) grew by a larger margin of 13.5%, YoY.

Following this, the gross profits (Rs.5.4 billion) declined by 32% YoY, and after taking into account the remaining expenses and net operations, the company’s pre-tax profits were recorded at Rs.4.1 billion (-46% YoY).

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