Pak Suzuki Motor Company

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Highlights - Corporate News

Pak Suzuki Motor Company Limited (PSMCL) is a public limited company that was formed in 1983 as a joint venture between Pakistan Automobile Corporation Limited and Suzuki Motor Corporation Japan. A year later, the company started its operations, which was initially limited to the assembly and marketing of Suzuki FX.

The early 90's marked the firm's privatisation after which it was placed under Japanese management. Post privatisation, the management engaged in extensive capacity enhancement and today Pak Suzuki's plant has the capacity to produce 150,000 units of cars and LCV's s well as 37,000 units of motorcycles per annum. Currently, the complete range of vehicles marketed by PSMCL is manufactured and assembled at the company's Bin Qasim plant. As of June 30, the company remains the market leader in terms of sales, having managed to increase its market share to 63 percent in overall sales of locally assembled passenger cars and LCV's.

Financial highlights

The persistent rise in fuel prices has meant that the market for luxury cars is rapidly deflating and demand for 1000cc and under, fuel efficient cars is on the rise. As a consequence Suzuki's excellent product mix managed to remain consumer's top choice and resultantly sales climbed up by 47 percent, reaching 61,638 units at the close of HY12 as compared to 41,783 units sold during the corresponding period last year.

Net sales revenue increased by 57 percent over the corresponding period last year, reaching Rs 35.4 billion as a result of the top line expansion. Sales during this period, however also comprised the one-off delivery of 13,130 units of subsidised taxis that the firm was under contract to deliver to the Bank of Punjab at the end of July.

Consequently, clocking in at Rs 1.4 billion, after-tax profits climbed up a staggering 390 percent at the end of the half-year mark, up from Rs 278.9 million recorded last year.

The firm's gross profit margins also improved during this period from four percent to six percent in absolute terms and combined with the high sales volume and a seven percent price hike on popular models, contributed to a 173 percent increase in the firm's gross profits.

Higher sales also meant that while general expenses including distribution and marketing rose due to factors such as inflation and increases in employee salaries etc; in terms of percentage of sales, both took a dip- with distribution expenses going down from 0.6 to 0.4 percent while administrative charges fell down to 1.1 percent in terms of sales from 1.5 percent recorded during the same period last year.

Additionally, the firm's other operating income also improved significantly on account of income from bank deposits and gains from disposal of fixed assets. Going up to Rs 332 million from Rs 271 million, the gain further contributed to strengthening the firm's bottom line.

Operational highlights

The period ended June 30 marked a positive time for automobile manufacturers as the total market for light commercial vehicles and passenger cars grew by 24 percent as compared to the same period last year. With the company's manufacturing facilities operating at 82 percent of its capacity, Suzuki's total production went up to 61,183 units of cars and light commercial vehicles against 45,976 units produced during the same period last year.

Total car sales, which climbed 47 percent during the last quarter were however primarily, led by sales of Mehran and Bolan, both of which grew by 45 and 101 percent over the same period last year in terms of unit sales.

Demand for fuel-efficient cars

Barring the fat growth in the firm's top-line due to the record sales in lieu of the Taxi scheme, Suzuki's growth has remained modest. The last two quarters have seen car sales decline for Alto, which Suzuki has been forced to discontinue on account of the firm's Japanese parent's decision to move the assembly line for Alto's Euro-II compliant parts from Japan to India.

Operational difficulties therefore, have altered Suzuki's stance on the Pak-India trade liberalisation scheme, with the manufacturing giant now being forced to urge the government to speed up the process.

Consequently, the market for under 1000cc cars has become even more tighter, with the absence of both Coure and Alto from the market leading consumers to go for the Japanese assembled Alto and Passo, Nissan's March and Daihatsu's Mira, all of which are available in the market at a price challenging Suzuki's remaining alternatives Mehran and Cultus.

Future Outlook

While the last year has been characterised by an extended period of profitability for the firm, the coming terms are expected to bring harder tides. Despite the tough challenges faced by a large number of firms in the industry, Suzuki has remained stronger than its adversaries; however, the end of the Taxi scheme and the discontinuation of Alto are expected to bring along with it a further drop in sales.

The months subsequent to the release of the firm's half year results, have already born evidence to this, with the sales of their passenger cars taking a 51 percent dip month on month at the end of July 2012, standing at 5,615 units compared to 11,352 units sold in the previous month.

Similarly, the rising tide of imported vehicles is continuing to smother the market for indigenously produced vehicles, siphoning away 32 percent of the market demand away from local auto manufacturers as of Jul 12. The future for Suzuki therefore seems laced with both opportunities and dire threats, and the way the firm's management decides to tackle the core issues facing the entire industry will determine the fate of their profitability and market share.

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