Pak Suzuki Motor Co to benefit from Yellow Cab scheme

Pak Suzuki Motor Company (PSMC) has been suffering because of appreciation in Yen, relaxation in import policy and production constraints after it was hit by a tsunami. The gross profit margin of the company has decreased considerably to mere two per cent in the last year from four per cent the year before.
These factors have had a negative effect on the stock of PSMC, underperforming the benchmark KSE-100 Index by 5.9 per cent since the beginning of second Quarter CY11. However, Financial Year 2012 provincial budget of Punjab is has good news for PSMC as the provincial government has planned to launch a Cab Scheme for which ‘Mehran’ and ‘Bolan’, two major brands of PSMC have been short listed.
The government of Punjab has announced a yellow cab scheme worth of Rs4.5 billion to provide 20,000 cabs in FY12 Budget. The government has shortlisted locally assembled Mehran and Bolan for this scheme. Details of car financing are yet to be unveiled. This policy is contrary to yellow cab policy that was launched by Nawaz Sharif in 1992-1993, where imported vehicles were used only.
The main beneficiary of the yellow cab scheme would be PSMC. If this scheme is implemented, PSMC’s car volumes are likely to spike by nine per cent and 16 per cent in CY11E and CY12F to 71,704 and 85,855 units from current assumption of 65,704 and 73,855 units, said Shahbaz Ashraf at AHL. Consequently, earning per share would improve by 75 per cent and 116 per cent to Rs7.1 per share and Rs12.93 per share in CY11E and CY12F, respectively.