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Pak Suzuki suffers amidst decline in Auto sector’s profitability by 27%

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November 20, 2018 (MLN): The profitability of the auto sector during the first quarter of FY19 has declined from Rs 6.4 billion last year to Rs 4.6 billion this year, exhibiting a change of 27% YoY.  This was primarily due to a 3.78% YoY drop in gross margins, which was caused by sharp rupee devaluation of 18% against the dollar.

The profits of the sector fell in spite of increase in net sales by 9% during the period under review, owing to the price increases by various auto companies to offset the effect of rupee devaluation, whereas volumes during the quarter were down by 4%. Moreover, administrative expenses surged by 39% YoY during the quarter.

Pak Suzuki (PSMC) contributed the most to these variations, as it opted for debt financing of Rs. 4 billion in the latest quarter to meet its working capital requirements; whereas, it has generally relied on internal cash generation for its financing requirements in the past and does not enjoy cash cushions unlike Indus Motors and Honda Atlas.

Nonetheless, it is expected that the sector’s profitability will remain restrained in 2019 owing to a number of factors including price increases by Indus Motors and Honda Atlas in Jan-2019, interest rate hikes, lower buying power from rising inflation and restriction on non-filers.

Beyond 2019, the entry of Kia motors and Hyundai is expected heat things up further for the existing local assemblers.

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Posted on: 2018-11-20T13:27:00+05:00

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