Pak Suzuki Motor Company (PSMC) has reported a huge drop in the profits thus beating a 10-year record during the first quarter of the year 2019.
The 1st quarter of 2019 ended on 31st March as the largest auto manufacturer in the country went through a loss of Rs.980 million. It is worthy to note here that through the same period in 2018, the company recorded a hefty profit of Rs.904 million. The history reveals that over the past decade, it’s the heaviest loss faced by the automaker. This particular decline refers to the economic slowdown process in the country. The overall revenue of Pak Suzuki has seen an increase of 9.3% going all the way up to Rs.34.44 billion from the previous Rs 31.50 billion. It has resulted basically on the back of the increase in the average price of products. Otherwise, the company’s volumes have dropped by 4% on year to year basis.
On the other side, the cost of sales increased in 2019 from Rs.28.89 million to Rs.33.32 million with a hike of 15.33%. It has also caused a drop in the gross profits of the automaker by a hefty 57.50% going down from Rs.2.61 billion to Rs.1.11 billion. The cost of doing business has seen a significant rise due to the devaluation of Pakistani Rupee against the US dollar which has resulted in declining profits. The business environment is not favorable for the automobile industry as the impact of economic slowdown process is transferred to the end consumers. The decline in volumes of the vehicles of Pak Suzuki can be seen below:
The maximum drop in the volumes is observed in Suzuki Swift which has never been the buyer’s first choice. Also, note here that Mehran is the second in the list of dropping volumes which is unusual but does make sense in the current scenario as these were the last three months of the production of the iconic hatchback of Pak Suzuki. It’s now been replaced by a 660 cc 8th generation of Alto. However, the volumes of Cultus and particularly Wagon R have seen a rise on the back of ride-hailing companies despite several price hikes.
The increase in interest rates and the dipping economy has affected the financial cost by nearly 5.5 times. It has been mainly due to the lower customer deposits which increased the working capital by 345.6% from Rs.73.34 million during the same period last year to Rs.326 million. Consequently, the administrative cost also increased to Rs.626 million and decreasing the income of the company from Rs.176 million to Rs.49.81 million in 2019. The sales of motorbikes also observed a marginal increase of 480 units as the sales went up to 6009 units as compared to 5529 units in the first three months of the previous year.
The unusual changes in the exchange rate and ever-increasing competition from the existing and particularly new players could result in a drop of profit margins of these dominant auto manufacturers in the country. The competition is becoming intense and demands an improved quality of product to stay alive. As the stats reveal that Pak Suzuki has suffered a loss of Rs.11.92 per share as compared to its earnings of Rs.10.99 per share during the last year. It could further dip as the vehicle sales of the company will now be shared among its competitors in the market. The buying power of the consumers is also reducing considerably hence resulting in reduced sales and profits of the companies. Let’s see how the next quarter goes for the largest auto manufacturer in Pakistan as the buying trends are changing rapidly in the automobile industry.
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