Honda Cars Posts Huge Losses in First Quarter of FY2020 - Android

By Jehangir Nasir and Waleed Shah Honda Atlas Cars Pakistan Ltd’s (HCAR) announced its financial results for the first quarter… Read More

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By Jehangir Nasir and Waleed Shah

Honda Atlas Cars Pakistan Ltd’s (HCAR) announced its financial results for the first quarter ended June 30, 2020.

The car assembler has reported a loss of Rs. 511.02 million as compared to a profit of Rs. 241.71 million recorded in the same period last year. During the first quarter, the company sales were down by a massive 63.60% to Rs. 6.57 billion as compared with Rs. 17.87 billion recorded in the same period last year.

The major reasons behind the drop in profits were the decrease in sales as the volumes sunk because of lockdown in April and weak demand during May & June as COVID-19 wreaked havoc all over the world. The government had imposed a lockdown across the country in the latter half of March 2020 which continued on till the end of May-2020.

It is pertinent to mention that in Apr-2020, no car sales were recorded in Pakistan.

Other major reasons were the rise in prices as the Rupee/Dollar parity remained volatile and high during the quarter (APR-JUN20) with high material costs due to Rupee’s devaluation against the US Dollar. Disruption in the supply chain due to Covid-19 could have also contributed to lower margins.

The country’s automobile sector is facing one of the worst slowdowns in decades, primarily from contracting demand due to the COVID-19 and poor customer sentiment.

However, the cost of sales during the year was stated at Rs. 6.45 billion, down 61% against Rs. 16.52 billion due to low production, which took the gross profits to just Rs. 54 million against Rs. 1.35 billion.

Other income of the company also went down by 48.04% during the quarter to just 90.93 million as compared to Rs. 175 million in the same period last year due to a drop in new car bookings and realization of short term investments to manage the liquidity position of the company.

Despite the decrease in interest rates during the period, the financing cost of the company increased by 64.15% to Rs. 727.44 million as compared to Rs. 54.44 million. The increase in finance cost was due to increased borrowing to fulfill higher working capital requirements.

However, according to Topline Securities, the Finance Cost declined by 40% QoQ as the company substituted its local currency loan with short term loan of USD14 million at a markup rate of 3.2% from Asian Honda Motor Co. (a related party).

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Distribution and marketing costs slightly increased to Rs. 180.80 million as compared to Rs. 177.89 million during the period under view. Administrative expenses were reduced to Rs. 147.90 million as compared to Rs. 196.78 million with other operating expenses decreasing by 83.03% to Rs. 125 million as compared to Rs. 739 million, which was something positive.

The company reported a loss per share of Rs. 3.58. from earnings per share of Rs. 1.69.

It is also pertinent to mention that the said downward trend is due in large part to the sales figures that have been recorded as of late. As per the data released by Pakistan Automotive Manufacturer’s Association (PAMA), the sales of two of Honda’s most popular cars i.e. have plunged significantly in the past 2 years.

During the Financial Year (FY) 2018-19, Honda sold a total of 39,189 units all over Pakistan. However, during FY 2019-20, the total number of both Honda City and Civic units sold across Pakistan was a meager 14,091, which accounts for a catastrophic 64% decrease in the sales figures as compared to FY 2018-2019.

To make matters worse, HCAR jacked the prices of their cars 4 times in within a year’s time, from June 2019 to May 2020, leading to an average price increase of Rs. 500,000 for each car. With such a steep climb in terms of price and no improvements in the car’s performance or features to speak of, people are sure to get impatient with the brand as well, which spells disaster for HCAR’s future.

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