Finance

Pak Suzuki Motor Company gross margins declines 2.8pc

Karachi, May 25, 2022: Pak Suzuki Motor Company (PSMC) conducted its 1Q2022 analyst briefing today where the management discussed financial results of the company and its future outlook.

The company expects 5-10 percent decline in volumetric sales in FY23 amid higher car prices, an increase in interest rates, and a reduction in consumer finance tenure. To highlight, PSMC’s 35 percent of total sales are from consumer financing.

Out of the total sales of the company, around 40 percent of the sales is in rural areas whereas the remaining 60 percent of the sales is in urban areas.

Gross margins of the company declined in 1Q2022 to 2.8 percent from 3.6 percent in 4Q2021 on the back of currency devaluation, higher inflation, and shortages of shipping containers that led to an increase in freight costs as the company still uses air freight. However, it is anticipated that this impact will reduce in the upcoming months.

The global shortage of semiconductors and chips have impacted automobile industries across the globe, however at this stage, PSMC is not affected significantly from this scarcity.

Pak Suzuki highlighted that the late delivery charges incurred in 1Q2022 were not a one-off cost and will continue to impact going forward but at a slower pace. However, company is trying to manage supply chain to make timely deliveries.

Newly launched Swift got a positive response as company received orders of 6,500 cars in two months vs expectation of 1,500 units in one month.

Localization for Swift has reached 35 percent, Cultus 51 percent, Wagon-R 60 percent, Alto 62 percent, Bolan 72 percent and Ravi 68 percent.

Company plans to enter Hybrid and Electric vehicle as they see higher potential in this category however the company did not share specific timelines for the implementation of its plans.

Recent restrictions on CBU import will not have significant impact on the company’s profitability. However, any restriction on CKD import will affect profitability.

To recall, company recorded LPS of Rs5.59 in 1Q2022 as compared to EPS of Rs 9.45 in 1Q2021.

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