Karachi, July 25, 2023 (PPI-OT): HCAR: Management focused on preserving margins
Honda Atlas Cars Limited (HCAR), held its Analyst Briefing yesterday to discuss financial highlights for the year ended March 2023 (MY23) and outlook. HCAR posted MY23 EPS of Rs1.8, down 90% YoY on the back of lower volumetric sales, higher financial charges and FX losses.
Management shared that further rupee devaluation could result in additional price hikes for cars. This potential scenario underscores the importance of managing currency exposures to mitigate the impact on product pricing and overall profitability. Pakistan's automobile sector faces major challenges, including weak demand, rapid price escalation, expensive auto financing and deteriorating macros. While there are signs of supply side recovery, the path to normalcy for the sector remains uncertain and profitability will likely remain under pressure in the near term.
FX loss of Rs4.5bn drags company profitability during MY23
Honda Atlas Cars Limited (HCAR), held its Analyst Briefing yesterday to discuss financial highlights for the year ended March 2023 (MY23) and outlook. To recall, HCAR posted MY23 EPS of Rs1.8, down 90% YoY, due to lower volumetric sales (-32% YoY) and substantial foreign exchange loss of Rs4.5bn. High interest rates prevalent during the year added to higher financial charges, further trimming earnings and also leading to skip any payout for MY23.
During MY22, HCAR maintained its market share of 16%, whereas INDU and PSMC captured market shares of 18% and 52%, respectively. Kia and Hyundai had market shares of around 7% each. HCAR’s production during MY23, decreased by approximately 31% YoY, amounting to 26,176 units, primarily attributed to restrictions on LCs. Concurrently, sales volume also experienced a decline of about 32% compared to the same period of the previous year, clocking in at 25,726 units.
Price hikes necessary to protect margins
Management shared that due to company’s reliance on imports to fulfill its raw material needs, it faces a substantial currency exposure. Company has currency exposure in US$, THB and JPY. Management apprised that car prices are influenced primarily by two factors, the depreciation of rupee and fluctuations in international steel prices. The unprecedented PKR depreciation during the past year led to multiple rounds of price hikes by HCAR. Moreover, any further devaluation of the rupee could result in additional price hikes for cars.
Localization in terms of parts for HCAR currently stands at 71%/61%/52%/55% for City/Civic/BRV/HRV, respectively. Localization in terms of value, however, remains less than the aforementioned datapoints. With regards to future developments, management disclosed that they are currently working on new models and variants where a Hybrid car is also in the pipeline.
Concerns remain for Pakistan’s automobile sector
We maintain our Sell stance on the stock due to subdued demand, which is expected to limit profits. Pakistan's automobile sector faces major challenges, including weak demand, rapid price escalation, expensive auto financing, higher taxes, and deteriorating macros. While there are signs of supply side recovery, the path to normalcy for the sector remains uncertain. Persistent demand-related challenges are expected to negatively impact sales volumes in the coming months.