Karachi, July 29, 2021 (PPI-OT): HCAR – Corporate Briefing takeaways

JS Global Capital Ltd. co-hosted the Corporate Briefing session of Honda Atlas Cars (Pakistan) Limited (HCAR) yesterday where the company’s management discussed the latest FY21 financials and shed light on future prospects. To recall, HCAR Profit after Tax of Rs1.8bn (EPS: Rs12.56) for FY21 was 163% higher than the Rs682mn (EPS: Rs4.77) reported in FY20. We share key takeaways from the presentation and the Question and Answer session that followed.

With regards to financial performance, the company management shared that:

The substantial 22% boost in net revenues during FY21 was supported by a 7% increase in volumetric sales and an increase in prices during the year.

Owing to strict lockdowns, production was limited during April and May 2020. This resulted in higher fixed costs which eroded the gross margins down to 5.6% (previously 7.4%).

Despite lower gross margins, improvement in the company’s net margins from 1.2% in FY20 to 2.7% in FY21 were supported by [1] substantially lower finance costs as a result of the sharp drop in the policy rate and [2] exchange gains.

The management of HCAR also shared the following points on the company’s operations:

The global chip shortage is still an ongoing issue.

Honda has officially entered the Balochistan market with a new 3S dealership in Quetta.

71% of City, 58% of Civic and 51% of BRV parts are localised.

Currently just over 45% of the company’s sales are made through auto financing. This is expected to rise in a low interest rate environment where car prices are also rising steadily. The company has also successfully entered into a number of MoUs with commercial banks allowing customers added benefits such as priority delivery, maintenance packages, exclusive mark-up rates and discounted registration to name a few.

Currently, the plant is operating on a double shift to cater for the higher demand.

Heightened freight costs and ballooned commodity prices in the international markets are currently being absorbed by the company. Though the former has reduced substantially, the management is of the view that they will not return to pre-Covid levels at least this year.

To comply with international regulations, all engines currently used by Honda are designed around Euro-4 fuels, which make them more expensive than the competition.

We believe that above two points read together indicate that price hikes this year cannot be ruled out.

On the future prospects, the management shared that:

The much awaited new generation of the Honda city will be launched today where its price will be announced.

With regards to volumetric sales, the management expects to sell about 9,000 units per quarter for foreseeable future.