Karachi, July 24, 2023 (PPI-OT): HCAR - MY2023 Analyst Briefing Takeaway

Honda Atlas Cars Limited (HCAR) conducted its analyst briefing today to brief investors on MY23 results and to shed some light on future outlook. Key takeaways from the meeting are as follows:

To recall, company had reported PAT of PkR260mn (EPS: PkR1.8) in MY23 vs PAT of PkR2.6bn (EPS: PkR17.6) in MY22, a decline of 90%YoY. The decline in profitability was primarily attributed to a decrease in sales volume, an exchange loss of PkR4.5bn, and the imposition of a 10% super tax.

Gross margins rose to 7.5% compared to 5.2% in SPLY, driven by frequent price increases owing to rapid PkR depreciation and heightened inflation. However, management clarified that high gross margins in the last reported quarter are not sustainable and were primarily driven old inventory and year-end adjustments.

Company's volumetric sales posted decline of 31.6%YoY in MY23 majorly due to the import restrictions that hampered production (down 30.7%YoY). Company ended the year with a market share of 15.8%.

On the demand side, management expects demand to remain in check given the heightened auto prices and record high interest rates. The recent interest rate hikes have led to a decline in demand from auto financing, dropping from approximately 35-40% to around 10-15% currently. Management is optimistic that the company will be able to achieve sales volumes similar to those of MY23 if the import restrictions remain eased off. To note, in 1QMY24, company only posted sales of 604 units vs. MY23 quarterly average of 6.4k units.

Regarding LC restrictions, the management indicated that some restrictions have been eased off, and the company has been able to open some recent LCs.

Currently, the localization levels stand at 71%, 61%, 52%, and 55% for City, Civic, BR-V, and HRV models, respectively. Additionally, the company is actively working on a hybrid model, which is currently in the pipeline.

In terms of foreign currency exposure, the company's major exposure is in US Dollars, followed by Japanese Yen and Thai Baht