Pak Suzuki Motor Company Limited, which is the largest player in Pakistan’s automobile industry, has announced its financial results for the second quarter of CY 2020.
The company reported a loss of Rs. 1.52 billion on the back of a massive reduction in sales. The car manufacturing firm booked a loss of Rs. 544 million in the same quarter in 2019, according to a notice sent to the Pakistan Stock Exchange (PSX) on Wednesday. Suzuki’s losses have increased by 1.8x during the second quarter of FY 2020. This takes the half-year losses to Rs. 2.46 billion as compared to a loss of Rs. 1.52 billion last year, an increase of 61.90% year on year.
It is pertinent to mention that Pak Suzuki Motors has declared its 7th consecutive quarter making a loss.
Net sales during the quarter dropped massively by 69% to just Rs. 9.73 billion, as compared with Rs. 31.03 billion in the same period last year. With the drop in sales and demand owing to COVID-19, the cost of sales also decreased by 66.31% to Rs. 10.35 billion as compared to Rs. 30.72 billion.
However, multiple price hikes restricted the impact. The company’s gross margins fell by 7.3% YoY from 1.0% to -6.3% due to low fixed cost coverage. The appreciation of USD/PKR to an average of 163.4 along with disruption in the supply chain due to the pandemic also likely contributed towards lower margins.
Distribution and administration costs dropped by 76% and 22% year on year, respectively.
Due to the low sales, the company reported a gross loss of Rs. 612.48 million. It had reported a gross profit of Rs. 311 million in the same period last year.
The demand for new cars remained depressed throughout the period amidst high car prices and the negative impact of COVID-19 on consumer buying.
The company saw a gigantic slump in sales volume for cars and light commercial vehicles as the volumes declined by 75.32% from 30,433 units to just 7,512 units in the second quarter. It is to be noted that there were no car sales recorded in April 2020.
|Models||Q2 2020 (Apr-Jun)||Q2 2019 (Apr-Jun)||Difference|
Mehran was discontinued by Suzuki last year and was replaced by Alto in June 2019.
The second quarter was hugely impacted by the coronavirus pandemic as volumetric sales dropped by 75.32%. Due to the lockdown, the company had closed all operations which impacted both the production as well as sales. The company had to shut down operations for almost 75 days.
Suzuki saw a 133% increase in finance cost as lower customer deposits forced the company to rely on borrowings to finance its working capital requirements amidst high inventory levels as sales remain slow. This has also been a major drag to the profitability of the company. The finance cost increased to Rs. 886 million in the second quarter as compared to Rs. 379 million in the same period last year.
On the flip side, the company booked a net tax benefit of Rs. 551 million during the 2nd quarter, 2020. It had reported a loss before tax of Rs. 2.07 billion and after the tax credit, the loss was minimized to Rs. 1.52 billion during the above mentioned period.
Loss per share during the quarter increased to Rs. 18.49 as compared to a loss per share of Rs. 6.62 in the same quarter in 2019.
COVID-19 has made a huge impact on price elastic consumers, which the company primarily serves. However, gradual economic recovery would improve PSMC’s sales in the upcoming months, allowing the company to free up its inventory and repay its ST borrowings. Combined with a 625bps cut in the policy rate, this will aid Pak Suzuki with reducing its finance cost and possibly encourage demand via auto-financing.
However, despite the strategies to avoid any financial missteps, PSMC’s recent performance has been less than spectacular in terms of its pricing strategy. Despite the massive slump in the sales of the company during the FY 2019-20 due to the Coronavirus, the company has enacted a multitude of price revisions, while offering the same old products that are either obsolete for 10 years or do not justify the price in terms of value and quality.
Furthermore, with a few alternative brands soon to arrive in the Pakistani market, the chances of Suzuki losing a fair chunk of their share in the market seem more probable than ever at this point. Therefore, we can all agree that PMSC must introduce new products with a competitive pricing strategy in order to stay relevant.
With additional input by Waleed Shah.