As of September 1992, the Company was privatized under the government's privatisation policy and was placed under Japanese management. At the time of privatization, SMC enhanced its equity to 73.09 percent by purchasing the remaining shares from PACO. After privatization, the Company enhanced its capacity to 50,000 vehicles per annum. As demand garnered and sales volumes picked pace, the Company raised its capacity in three phases in 2005, 2006 and 2007. The annual capacity now clocks in at 150,000 vehicles per annum.
In 2011, the Company set up a new plant for motorcycles at Bin Qasim Industrial Area. The motorcycle plant has an annual capacity of 37,000 units per annum. Over the years, the Company has developed an efficient and broad network of sales, service and spare parts dealer.
FINANCIAL HIGHLIGHTS 2Q CY13 During the first half of 2013, PSMC saw a dip in its sales volume by 33 percent in line with the industry wide drop in sales of 20 percent, compared to the corresponding period of last year (Jan-June 2012). This decrease in sales volume can partly be explained by the discontinuation of Suzuki Alto, which had at one time led in terms of sales in the 1,000cc category. But the primary factor for depressed sales seems to be the discontinuation of the outgoing Punjab government's yellow cab scheme.
The half-year period ending June 2012 saw the sale of 13,130 units of yellow cab and 9,509 units of Suzuki Alto, adding up to 22,369 units in total. In contrast, the sales volume dipped from 61,638 units in 1H CY12 to 41,445 units in 1H CY13; a decrease of 20,193 units. This indicates that the Company was partially successful in shifting the depressed demand for phased-out models to other models it produces.
Nevertheless, the substantial decrease in capacity utilisation of 26 percentage points is reflected in the sharp decline in ROA and ROE by 20.87 percent and 30.07 percent, respectively.
The Company's share in the motorcycle market stands at a meager two percent. The motorcycles division of the Company is operating in a difficult market dominated by 70cc engine capacity-compared to the 110cc and 150cc engine bikes produced by Pak Suzuki. Plans of expansion in this niche market did not materialise as the Company saw a decline in unit sales by almost 6.5 percent.
A sharp year-on-year decrease in top line by 26 percent (after a 56 percent growth in the half year ending June 2012) was mirrored by a massive decline in gross profit by 30 percent, against a 173 percent growth in the corresponding period of last year.
Net profit declined by Rs 212 million in absolute terms, to Rs 1.16 billion. Distribution expenses went on a growth spurt with a 57 percent rise; an increase both in absolute terms and as a percentage of sales.
Primarily driven by increased spending on advertising and sales promotion, the Company's marketing spending helped shift demand from the phased out models. The Company was successful in maintaining its position in the market with a 53 percent piece of the pie.
The Company was also successful in maintaining its net profit margin, which grew by 15 percent, thanks to a one-time increase in the other operating income of Rs 232 million. This included a gain on disposal of a motorcycle plant and income from bank deposits and receivables. On the other hand, the foreign exchange loss increased financial cost by a massive Rs 45 million-a one-time loss which can be reversed given the weakening of Yen against the US Dollar as a result of a policy shift taken by the new Government in Japan, unless diluted by the depreciation of the local currency.
LIQUIDITY AND SOLVENCY STANCE The Company's current ratio and net working capital saw little change over the corresponding period of the previous year and stand at 2.57x and Rs 11 million, respectively. The solvency picture also remained largely unchanged with D/E ratio of 0.45x and leverage ratio of 1.45x.
GOING FORWARD The Company has enjoyed over 60 percent market share in the four-wheeler market for a long time, but its sales volume witnessed an overall declining trend from 2008. The decline in the capacity utilisation at PSMC over the past few years has been driven by several factors, and may indicate a need to rationalise the available capacity. The disposal of the Company's old motorcycle plant to Reckitt Benckiser in April 2013 suggests that it may already be trekking down that road.
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PAK SUZUKI MOTOR COMPANY
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1H2013 1H2012 1H2011
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Turnover - net 26,880 36,471 23,251
Cost of sales (25,303) (34,219) (22,427)
Gross profit 1,577 2,252 824
Distribution costs (241) (153) (140)
Administrative expenses (441) (423) (353)
Other operating income 564 332 271
Other operating expenses (97) (138) (47)
Profit (Loss) from Operation 1,362 1,870 555
Finance costs (52) (7) (9)
Profit before taxation 1,310 1,863 546
Taxation (154) (494) 267
Profit after taxation 1,156 1,369 813
EPS (Rs) 14.05 16.64 3.39
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Source: Company accounts