JS Securities Limited – Result Review

Karachi, April 23, 2019 (PPI-OT): PSMC: LPS of Rs11.92 in 1QCY19; a sign of things to come?

Pak Suzuki Motor Company (PSMC) announced its 1QCY19 results today. The company declared a loss after tax of Rs981mn (LPS: Rs11.92), compared to a profit after tax of Rs904mn (EPS: Rs10.99) during 1QCY18. This is the second consecutive quarterly loss booked by the company after LPS of Rs1.15/share in 4QCY18 and is, in our view, only a glimpse of the difficult circumstances prevalent for the auto assemblers since the recent 10-12 months (rupee devaluation, interest rates, etc.). Although net sales increased by 9% YoY, gross margins nosedived from 8.3% in 1QCY18 to 3.2% in the recent quarter, which was the major reason for the above expected net loss during the quarter.

Moreover, other income declined by 72% YoY, most likely as a result of lower bank deposits. Finance costs increased by 346% YoY as the company has recently resorted to short term borrowings due to a depleted cash position (as advances have declined). On a QoQ basis, the LPS increased from Rs1.15 to Rs11.92, mainly due to tax credits availed in the preceding quarter. Going forward, we reiterate that the key question mark for PSMC (and the other 2 OEMS) remains gross margins, even more so than volumes. It should also be noted that the Jan-Mar quarter is typically the most lucrative for the auto assemblers from an earnings’ point of view (last 3 first quarters’ avg. EPS Rs12.79 vs. the next best quarterly avg. of Rs6.63, i.e. almost double) as volumes are at their highest. Given this quarter’s performance by PSMC, it would be really difficult for the OEM to declare a net profit for the full year CY19, despite the entry of Alto into the fray.

You May Also Like