Karachi, August 25, 2023 (PPI-OT): PSMC - 2QCY23 Result Review - Surprise earnings over reversal in financial charges

Pak Suzuki Motor Company Ltd. (PSMC) announced its 2QCY23 result today where the company has posted earnings of PkR3.2bn (PkR39.4/sh) compared to loss of PkR12.9bn (LPS: PkR156.9) in the quarter before. The company's profit for the quarter is mainly attributed to a negative finance charge of PkR2.7bn and elevated other income.

Auto manufacturer's topline stood at PkR21.3bn (down 2%/67% QoQ/YoY), primarily due to a decrease in sales volumes, with the company selling 7.4k units during the quarter, compared to a monthly avg. sale of 31.5k units in CY22.

Gross margins improved to 10.1% during the quarter, up from 9.1% in the previous quarter. This improvement is due to the full impact of increased prices over the quarter and a stable US$/PkR parity. To note, average USD/PkR rate was PkR286.2/US$ during the quarter, showing a 1% depreciation from the end price of PkR283.6/US$ in 1QCY23.

Distribution expenses decreased by 72% QoQ to PkR243mn, mainly due to reduced transportation charges resulting from the decline in sales volumes. However, administrative costs remained elevated, increasing by 16%YoY due to inflationary pressures.

A notable surprise was the negative financial charges of PkR2.7bn (PkR32.5/sh), which could potentially be a reversal of exchange loss incurred in the last quarter from the parent company. PSMC’s management had previously indicated the possibility of assistance from its parent company. While, further clarity is awaited to understand the exact reason for this development.

Another positive surprise was other income, which reached PkR774mn for the quarter, marking a 9.5x increase QoQ, despite a significant decline in the company's cash reserves. Notably, the company's last reported reserves have decreased by 98% QoQ.

Finally, for the first half of the calendar year, the company's loss amounted to PkR9.8bn (LPS: PkR117.6), primarily due to a substantial finance cost of PkR12.8bn incurred in the previous quarter.