Pak Suzuki reported Rs 980.7 million in losses for the quarter ended March 31, 2019 as company’s gross profit margins continues to shrink. According to a filing with the Pakistan Stock Exchange (PSX), the company earned Rs 904.1 million during the corresponding period a year earlier.
Pak Suzuki recorded loss per share of Rs 11.92 in the January-March period compared to earnings per share of Rs 10.99 in the comparable period a year ago. Its sales units fell by 3% during the quarter, compared to the same quarter last year mainly due to a drop in sales for Mehran, Bolan and Swift as Wagon-R and Cultus sales continue to show strength in the face of enormous market slowdown.
Despite recent government actions that would have had positive impact for Suzuki, including the removal of ban on non-filers to purchase new cars, and increased restrictions on imported (used) cars, the company could not grow enough volumes.
The slowdown in sales is also attributed towards the trend of increase in car prices since December 2017, when the Rupee started to nosedive against the Dollar. Car prices since then have seen an increase of 18 to 21% which has pushed them beyond the purchase power of the masses.
Pak Suzuki phasing out its most localized and best-selling model Mehran also meant the volume-driver drove sales downward. Moreover, cars with less localization such as Cultus and Wagon-R have been more popular amongst consumers, while there has been a clear lack of demand in the pickups and vans category. Businesses are tightening their expenditures which do not translate well for light commercial vehicles.
Related: Pak Suzuki Increases its CBU Prices
Since the company depends on completely knocked down (CKD) kits to assemble vehicles, and auto parts manufacturers need imported inputs, auto makers have had a tough time with rupee devaluation. Since Jan 2018 till now, the rupee has depreciated by 27% pointing towards more expensive imports. As a result, it has a nearly 60% reduction in gross profits.
Pak Suzuki’s borrowing costs have ballooned as well not only because of the higher rate banks are charging now after multiple sessions of monetary policy tightening but also because of increased short term borrowing to manage cash flows.
Advances have diminished and they will continue to dwindle down even as Alto 660cc bookings have started. The company needs to announce the actual prices for Alto variants so consumers can make informed decisions. Fuelling uncertainty in an uncertain market is not great for Suzuki’s volumes either. Road ahead is tough for sure…
From Business Recorder