A disruption in the supply chain of Japanese car manufacturers will have a discrenable impact in the second quarter of Current Year (CY) 2011 for Pak Suzuki Motor Company (PSMC) where quarterly slide of 25 percent is expected in terms of volumes to about 17,500 units.
The company has already revealed its plans to cut production in May-July period. However, normalising supplies and invigorated demand on the back of the resumption of steady supplies should boost volumes in the third quarter.
The increase in the prices of CKD kits and other auto parts (mostly imported from Japan) due to restricted supply after the recent earthquake is likely to dent margins of local auto assemblers in 2QCY11.
A new entrant policy is expected to be finalised in the forthcoming budget where the government is likely to provide new entrants a relaxed duty structure on CKDs for three years.
It is expected to pose negative implications for local assemblers as the same CKD variant will cost relatively less to new entrants.
It is pertinent to note that PSMC for 1QCY11 announced net earnings of Rs91 million (EPS Rs1.11), gross profit of Rs 343 million (up 141.7 percent annually) and top line of Rs12,570 million (up 25.2 percent YoY).
Net sales rose 25.2 percent since last year to Rs12,570 million in 1QCY11, on the back of 26.4 percent annual improvement in volumetric sales to 23,469 units and higher vehicle prices which were boosted by an average of 8.5 percent.
PSMC witnessed a strong surge in sales of its smaller cars (Mehran and Alto sales up by 43 percent and 40 percent in annual terms, respectively) primarily due to strong demand in the rural economy on back of high agriculture income during 1QCY11.
On QoQ basis, topline was augmented by 12.8 percent to Rs 12,570 million in 1QCY11 mainly driven by 14.5 percent quarterly increase in volumetric sales and 1.8 percent increase in vehicle prices due to rising international steel prices and an uptick in sector taxes.
Furthermore, gross margins improved to 2.73 percent in 1QCY11 as compared to 1.41 percent during the same time last year as higher volumetric sales and an increase in vehicle prices offset the appreciation of the Yen.
On QoQ basis, stable forex reserves and improved volumetric sales lifted gross margins by sizeable 256bps from 0.17 percent in 4QCY11. However, due to weak pre-tax margins of 1.75 percent in 1QCY11, the company had to pay one percent turnover tax that inflated effective tax rate to 59 percent for the quarter, said Mansoor Khanani at Foundation Securities.
