Honda Posts a Massive Decline in Profits & Sales in Latest Quarterly Results

Honda Atlas cars has announced its financial results for the 1^st quarter ended MY20 that ended on June 30^th 2019.

The company posted a profit of just Rs. 241 million; down by 77% in profits as compared to Rs. 1.05 billion in the previous year due to the decrease in revenue as the company saw declining volumes. Moreover, Rupee’s depreciation against the US dollar created problems for the company.

The major reason behind the drop in profits was the decrease in sales as the volumes sunk down by 33% thanks to poor sales volumes despite 16% higher average selling prices in this quarter.

The sales of the company clocked in at Rs. 17.87 billion, which decreased by 25.05% as compared with Rs. 23.85 billion in the same period last year.

The cost of sales of the company was stated at Rs. 16.52 billion, down 24% against Rs. 21.71 billion which took the gross profits to Rs. 1.35 billion against Rs. 2. Billion. Moreover, the gross profits fell by 37% on account of persistent Rupee devaluation.

Similarly, margins contracted by 24bps QoQ/ 144bps YoY, owing to the surge in costs from devaluation.

The other major reasons were higher car prices owing to the devaluation impact, the 10% FED imposition on 1,700cc and above cars (i.e. Civic) and the imposition of Advance Customs Duty (ACD) i.e. 5% on all the imports

Moreover, the overall increase in car financing costs due to higher interest rates has led to a slowdown in demand for the company.

During this month, Honda had to shut down its plant for 10 days as its inventories piled up to 2,000 units on plummeting car sales amid rising prices due to the imposition of new, higher taxes in the budget and steep currency devaluation in the recent weeks.

The other income was down by 61% to Rs. 174 million with operating expenses increasing by 113.14% to Rs. 739 million as compared with Rs. 341 million.

The finance cost bulked up to Rs. 54.4million from Rs. 4.40 million due to an increase in interest rates of the country. However, Honda paid 86.27% less tax of Rs. 114 million as compared with Rs. 833 million in the same period last year.

Earnings per share of the company decreased from Rs. 7.36 to Rs. 1.69.

Honda’s script at the bourse closed at Rs. 131.06, up by Rs. 3.31 or +2.59% with a turnover of 390,700 shares on Tuesday.

The country is facing an overall economic slowdown with Rupee devaluation. The competition for the company looks to be increasing day by day as the sector is welcoming new auto players. Honda’s future lies with the demand from the consumers and economic fundamentals, which don’t look that good at the moment.