Honda reports 36pc drop in 2Q profit

KARACHI: Profit of Honda Atlas Cars Ltd. fell 36 percent year-on-year to Rs1.030 billion during the quarter ended September 30, translating into earnings per share (EPS) of Rs7.22, a bourse filing said on Monday.

The company earned Rs1.617 billion with EPS of Rs11.33 during the corresponding period a year earlier, a statement to the Pakistan Stock Exchange said. Honda’s sales increased to Rs25.817 billion in the July-September quarter from Rs22.890 billion in the corresponding period a year earlier.

Analyst Daniyal Adil at Topline Securities said the company’s sales rose 13 percent year-on-year in the second quarter due to multiple price hikes since December 2017. “Growth in volumes continued to be led by Civic and city models, up 15 percent year-on-year, while sales of BR-V declined 38 percent year-on-year,” Adil added.

“Despite increase in net sales, gross profits fell 39 percent year-on-year due to 20 percent increase in cost of sales. Resultantly, gross margin fell 5.5 percentage points year-on-year to 6.4 percent.”

Adil further said rupee depreciation was the primary cause of deterioration in gross margins as the company faced higher raw material cost for both imported and local components. Local components use certain proportion of imported raw materials that are impacted by rupee depreciation.

Earnings were also dragged down by 35 percent year-on-year increase in administration cost and 26 percent year-on-year decrease in other income. “Increase in admin costs could be due to revision in salary and wages,” the analyst said. “Decline in other income is attributable to lower cash and short-term investments due to reduced advances from customers available to the company.” Lower effective tax rate of 24.4 percent in 2Q compared to 37.6 percent a year earlier supported the bottom line.

“We flag further unfavorable movement in exchange rate and commodity prices, regulatory changes, increased competition from existing and new players and disruptions in operations of principal company as key risks for the company,” Adil added. In the first half, the company’s profit slipped to Rs2.080 billion compared to Rs3.704 billion during the corresponding period a year ago.