With initially six dealerships in Karachi, Lahore, and Islamabad in 1994, the company's network has now grown to twenty-one 3S (sales, service, and spare parts), eighteen 2S (service and spare parts) and five 1S (spare parts) authorised dealerships in all major cities of the country. Since beginning operations, the company had produced and sold over 200,000 cars till July 2012. HCAR currently offers Honda Accord, Honda CR-V, Honda CR-Z, Honda Civic (four models) and Honda City (four models) in a range of colours. In 2003, HCAR achieved the ISO 14001 certification.
ECONOMY OUTLOOK The company's Annual Report asserts that there has been an improvement in the economic outlook of the country, with major indicators following healthy trends. Foreign exchange reserves reached USD 10.09 billion due to growth in remittances, IMF inflows and receipts from multilateral and bilateral sources. This also led to strengthening of the local currency, which appreciated by 6.5 percent during the year. While fluctuations in the value of currency had impacted the company's financials, timely actualisation of Eurobond receipts, Coalition Support Fund and proceeds from the auction of 3G/4G licences will bring stability to the exchange rate. However, the low tax to GDP ratio continues to burden the economy as the size of local debt inflates. The company's report suggests that as measures are taken towards fiscal consolidation, the country will be 'well-placed to achieve the GDP growth of 4.4 percent'.
INDUSTRIAL OVERVIEW The automobile industry experienced muted performance during the outgoing fiscal year and posted a decline of 5.8 percent in production during the 12-month period between April 2013 and March 2014. Total production stood at 121,200 units compared to 128,685 units during the corresponding period of previous year. There has been a corresponding decline in sales as well, which fell from 129,685 units to 120,107 units this year.
Of the three passenger car categories, production of upto-800cc category cars fell by 11.9 percent, that of 801-1000cc declined by 9.4 percent, and that of 1,300cc and above category cars largely remained steady. Demand for locally assembled cars was hit from the influx of imported-used cars as conditions for their import were relaxed with the lower engine categories particularly affected. Growth has largely remained sluggish in the industry despite efforts towards capacity expansion and localisation.
PERFORMANCE DURING YEAR ENDED MARCH 2014 HCAR celebrated its 20th year anniversary in December 2013. A conference was also organized for local vendors in Lahore during October 2013 by HCAR to further localisation of future models.
During the year ending March 2014, the company posted an increase of 19.8 percent in production and 23.3 percent in sales compared with the corresponding period of previous year. The market share of Honda Civic improved from 53 percent to 62 percent in the corresponding car segment. Compared with last year, the combined market share of Honda City and Honda Aspire also rose from 23 percent to 28 percent. On the whole, HCAR's market share in the 1,300cc-and-above passenger car category improved from 32 percent last year to 38 percent during the outgoing year.
Total production for the company stood at 23,223 units, while sales were posted at 23,210 units for the year. These numbers were the second highest achieved during the 21 years that the company has been operational, and the highest recorder over the last seven years. Capacity utilisation also improved on a single shift basis from 78 percent last year to 93 percent this year.
The company launched two models during the year, the premium luxury model of Honda Accord in June 2013, and its first sports hybrid, the Honda CR-Z model in December 2013. With appreciation in the value of rupee, the price of Honda City was cut by Rs 40,000 and that of Honda City Aspire was brought down by Rs 30,000 during the year.
FINANCIAL PERFORMANCE While the company has been facing difficulties over the last couple of year to overcome financial crises, improvements were achieved this year through efforts to increase capacity utilisation and cost rationalisation. Consequently, highest recorded sales and margins were posted during the year. Net profit rose significantly by 340 percent, posting Rs 1,073.7 million for the year. A similar increase was experienced in EPS, up from Rs 1.71 to Rs 7.52 this year, while return on equity was registered at 78.7 percent.
During the year, net sales registered an increase of 29 percent, while gross profit for the company posted a 97 percent increase. There was also a 49 percent increase in administrative and selling expenses, mainly on account of advertising and promotion expenses and wages and compensation. There was a 26.8 percent increase in other income resulting from improved liquidity and treasury management. Financial charges declined by 80.1 percent along with a 30.3 percent reduction in other expenses. PBT rose by 300 percent during the year.
Owing to improved demand over the last three years and in order to maintain cost effectiveness, HCAR has increased daily production from 80 to over 90 units during the outgoing year. The company plans to increase daily production to 100 units by the end of the first quarter of 2014-15.
FUTURE OUTLOOK The company posits that Pakistan's return to the international bond market after seven years is a positive indication; however, for longer term sustainability, there continues to be a consistent need for increase in FDI and fiscal revenues that can help improve the economy's fundamentals. The low tax base needs to be enhanced and subsidies need to be gradually phased out through structural reforms.
The auto industry's growth does not appear to be substantial over the coming quarters according to the company's annual report for the outgoing year. Nevertheless, HCAR is planning to consolidate its financial stability with advanced technology, better market share, improved model line-up, efficient after sales back-up and optimum operational efficiency for the upcoming year.
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HCAR Key Financials Year ending March 31
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Million Rs 2014 2013
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Sales 39153.3 30274.6
Cost of sales -36296.0 -28827.5
Gross profit 2857.2 1447.1
Distribution and marketing expenses -340.6 -218.7
Administrative expenses -287.0 -201.9
Other income 270.5 213.4
Other expenses -364.9 -524.1
-721.9 -731.3
Profit from operations 2135.3 715.8
Finance cost -38.1 -191.0
Profit before taxation 2097.2 524.8
Taxation -1023.6 -280.5
Profit after taxation 1073.7 244.3
EPS-basic and diluted (Rs) 7.52 1.71
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Source: Company reports