By Jehangir Nasir & Waleed Shah
Atlas Honda’s profits have turned into losses during the first quarter of FY20-21.
The motorcycle maker has posted a loss of Rs. 117.78 million during the first quarter that ended on June 30th, 2020. It’s one of the worst quarterly results of the company in recent history. It had reported a profit of Rs. 842.12 million in the same period last year.
The company’s sales went down by 60% to Rs. 9.15 billion as compared to Rs. 22.83 billion in the same period last year.
The cost of sales decreased to Rs. 9.06 billion from Rs. 21.11 billion, down by 57.08% due to low production amidst the lockdown during the period. This took the gross profit to just Rs. 88.72 million as compared with Rs. 1.71 billion in the corresponding year of the same period.
The two-wheeler industry caters to Pakistan’s need for low-cost and fuel-efficient transport. A large portion of Pakistan’s population continues to prefer two-wheelers for their daily commute. However, the industry faces challenges on account of unfavorable economic conditions and the lockdown to contain the spread of COVID-19.
On the other hand, the purchasing power of customers was affected due to lower levels of disposable income. This led to a contraction in demand as well.
Overall, the sales volumes were down by 64%. Honda sold over 104,928 units during the 1st quarter (Apr-Jun), as compared to 291,038 units last year. After selling a record low 2783 units in April, Honda somehow made a recovery and sold 12,106 units in May and 90,000 Honda motorcycles were sold in June. Low vehicle penetration ratios, urbanization, and changing customer preferences suggest a promising market potential, as a good recovery was seen during the last month of the above mentioned period.
It is worth mentioning that the Rupee-Dollar parity was volatile as Atlas Honda still increased prices multiple times during the quarter. However, sales and marketing expenses declined to Rs. 295 million, down by 43.70% as compared to Rs. 524 million. With other income increasing to Rs. 265 million from Rs. 263 million.
Other operating expenses saw a significant decline of 98%. It came down to Rs. 1.8 million from Rs. 90.21 million. The finance cost of the company was increased to Rs. 11.26 million from Rs. 5.03 million. Atlas Honda Limited has been a debt-free company for the past eight years and therefore incurs no borrowing cost. Finance cost represents bank charges on transactions paid to banks for collection from customers on behalf of the company throughout Pakistan.
It reported a loss per share of Rs. 0.95 as compared with earnings per share of Rs. 6.79 last year.
It is pertinent to mention that the company was not charged income tax expense for this quarter, which somehow was a relief for Honda. At the time of filing this report, ATLH’s shares at the exchange were trading at Rs. 410, up by Rs. 8.33 or 2.07% with a turnover of 1,400 shares on Wednesday.
Atlas Honda has been around for well over 5 decades in Pakistan. With such a long time in the market, one would think that the company would have a diverse product portfolio to keep the customers interested. On the contrary, Atlas Honda continues to offer the same old products with slightly different visuals each year.
Granted that their current marketing formula and product reliability is what earned them a lion’s share in the two-wheeler market, but with the rising bike culture in Pakistan as of late, with numerous new options available, odds of Honda retaining that share have become slim.
That said, now is an ideal time for Honda to enhance the overall value proposition of their brand by offering something new rather than resting on their laurels and cashing in on the demand vs price conundrum of the Pakistani buyers.