Honda Atlas Cars Pakistan Limited (HCAR) has experienced a significant decline in profitability, with its annual profits plummeting by 89.64% compared to the previous year. The company’s profit after tax for the financial year 2022-2023 stood at Rs260.14 million, a sharp drop from Rs2.5 billion in the same period last year. This decline in profits can be attributed to the high prices of cars in Pakistan’s market. Let’s explore the factors that have contributed to Honda Pakistan’s nosedive in annual profits.
Declining Sales and Revenue:
During the fiscal year under review, Honda Pakistan witnessed a 12% year-on-year decline in its sales revenue, which fell from Rs108.04 billion to Rs95.08 billion. This decrease can be attributed to the overall slump in car sales caused by the high prices of vehicles. Despite implementing multiple price revisions, Honda Pakistan experienced a 6% decline in volumetric sales, leading to a decrease in revenue.
Rising Expenses:
Honda Pakistan faced various challenges on the expense front. The distribution cost saw a 21% year-on-year reduction, amounting to Rs902.37 million. However, administrative expenses surged by 22.44% year-on-year, reaching Rs1.32 billion. Additionally, the company’s finance cost increased significantly by 6.49 times, totaling Rs346.14 million in the fiscal year. Higher interest rates played a key role in inflating the finance cost, adversely affecting Honda Pakistan’s profitability.
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Impact of Other Expenses and Income:
During the review period, other expenses increased fivefold, reaching Rs4.92 billion compared to Rs984.04 million in the previous year. On the other hand, other income experienced a modest rise of 15.8% year-on-year, totaling Rs2.32 billion. Although this increase in other income provided some relief, it was not sufficient to offset the substantial rise in other expenses.
Taxation and Dividend:
Honda Pakistan’s tax expenses slightly decreased by 2.44% year-on-year, amounting to Rs1.72 billion. In contrast, no final cash dividend was announced for the year, compared to Rs7.0 per share (70%) declared in the previous year. The decision to withhold dividend payments could be a reflection of the company’s financial challenges and the need to preserve capital in a difficult business environment.
Outlook and Conclusion:
The decline in Honda Pakistan’s annual profits reflects the challenges faced by the automotive industry in Pakistan, primarily driven by high car prices. As a result, the company experienced a substantial drop in sales and revenue. The rising expenses, particularly the finance cost and other expenses, further exacerbated the situation, leading to a decline in profitability. Despite efforts to revise prices and control costs, the impact on the company’s financial performance remained significant.
To regain profitability, Honda Pakistan and other industry players may need to address the issue of high car prices, as it directly affects consumer demand. By adopting strategies that promote affordability and cater to the purchasing power of the general public, automakers can potentially stimulate sales and revitalize the industry.
As the market dynamics evolve, it is crucial for Honda Pakistan to adapt and innovate in response to changing customer preferences and market conditions. Through a proactive approach, the company can position itself for future growth and overcome the challenges it currently faces.
