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HCAR_MY22 Analyst Briefing Takeaways, (AKD Off the Analyst's Desk Aug 02, 2022)

AKD, Off the Analyst's Desk

HCAR: MY22 Analyst Briefing Takeaways

HCAR has conducted its analyst briefing to comment on MY22 results and to shed some light on future outlook. Key takeaways from the meeting are as follows:

• To recall, Honda Atlas Cars Limited (HCAR) had reported PAT of PkR2.5bn (EPS: PkR17.6) in MY22 vs PAT of PkR1.8bn (EPS: PkR12.6) in MY21. Gross margins have reduced from 5.6% to 5.2% due to PkR depreciation which have impacted costs of sales. In terms of foreign currencies, major exposure for the company is in US$ at 70%, while merely 10% against the JPY.
• Net margins have taken a dent to 2.3% vs. 2.7% in MY21, owing to higher turnover tax expense along with high marketing and distribution expenses due to launch of new City and Civic models.
• Volume wise, The company produced 37,780 units, up 61%YoY, while 37,613 units were sold (+56.4%YoY). Hence, net revenue has increased to PkR108bn (+60.4%YoY). Moreover, HCAR has maintained its market share to 16% of the volumes in the industry. Sales ratio for Urban and Rural areas is 75%/25% for the Civic and 65%/35% for City.
• Due to rising interest rates along with revised tenures, proportion of sales through auto-financing has dropped to ~30% compared to the previous 40-45%. The company expects this to drop further as interest rates stay elevated.
• Delivery times for City is 3-6m, BRV is 3-4m while the Civic will take 10-12m for delivery for new bookings. The SBP has established a monthly quota of imports for the auto sector, cumulating to the monthly average of imports for Mar-June for each Assembler. The quota was 50% for July, 60% for August, and 70% for September. Hence, we expect sales to be impact from the coming months.
• The Supertax adjustment for MY22 will be recorded periodically in the coming quarters instead of a one-off adjustment. With the company being subject to turnover tax currently, we expect tax charge for the coming quarters to be reduced as sales decrease going forward.
• The company expects gross-margins to decline to 3-3.5% if the Rupee stays at current levels as there is a time lapse in the revision of prices. The ~20% hike in prices announced by the company in the past week are at a US$/PkR parity of 235.
• In terms of value, localization for the vehicles assembled is between 25% and 30%, although the company refused to provide a specific amount.
• The company expects demand to reduce by ~35% in MY23.

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