Honda Pakistan Earns More despite Expensive Models
  Nov 24, 2023     Arifa Hussain  

Honda Pakistan Earns More despite Expensive Models

Unexpectedly, for the quarter ended September 30, 2023, Honda Atlas Cars Limited (PSX: HCAR) announced a significant after-tax profit of Rs. 675 million (2QMY24). According to the announcement submitted to the Pakistan Stock Exchange (PSX), this is a substantial divergence from the Rs. 385 million losses declared during the same time last year.

Improvement of Positive Margin

The significant improvement in margins, which rose by 750 basis points year over year (YoY), is one of the key elements behind this amazing turnaround. Honda Atlas Cars managed to record a stunning 127 percent increase in gross profit for the quarter, reaching Rs. 1.52 billion, in spite of a difficult market situation. Arif Habib Limited attributes this favorable change in gross margin—which increased to 10.9 percent from 3.4 percent recorded in the same quarter the previous year—to higher automobile prices and decreased material costs, especially in the steel industry.

Sales Performance and Strategic Cost Management

The company's top line for the half-year ended September 30, 2023, was at Rs. 17.7 billion, showing a 64 percent YoY drop, despite a YoY decline in sales of 28.6 percent to Rs. 13.9 billion in the quarter. Effective cost-cutting initiatives, notably in distribution and marketing, helped to offset the drop in revenues, which were down to Rs. 212 million from Rs. 216 million during the same time previous year. The company's revenues for the quarter decreased by 28.6% YoY to Rs. 13.9 billion from Rs. 19.5 billion during the same period the previous year. The company's top line for the half-year ended in September was Rs. 17.7 billion, a 64 percent YoY decline.

Due to a smaller base impact and the fact that there were no non-operating days throughout the quarter and deliveries could be made, HCAR sold 2,510 units in Q2, an increase of +4.2x QoQ.

The Dynamics of Finance

Even though the company's financing cost increased significantly (191%) in 2QMY24, going from Rs. 41 million to Rs. 120 million, the impact was successfully offset by a 14% rise in other income. From Rs. 787 million in 2QMY23 to Rs. 896 million in 2QMY23, other income increased. During the reviewed quarter, the firm generated a gross profit of Rs. 1.52 billion, up 127 percent YoY from Rs. 673 million in SPLY. In the meantime, the gross margin improved by 750 basis points from the 3.4 percent gross margin reported in SPLY to 10.9 percent throughout the quarter. This was linked, according to Arif Habib Limited, to higher automobile costs combined with decreasing commodity prices, particularly for steel.

The Automotive Industry's Resilience

With this strong financial result, Honda Atlas Cars Limited is positioned as a strong participant in the automotive sector. Through the use of smart pricing and efficient cost management, the firm has demonstrated its capacity to not only recover from losses but also to flourish in a competitive and dynamic market. The upward trend in margins and profit growth highlights Honda Atlas Cars' flexibility and strategic capabilities in a market that is very competitive.

Arifa Hussain