Pak Suzuki posts disappointing results

One of Pakistan’s leading brokerage houses has revised down Pak Suzuki Motor Company (PSMC) earnings estimate post 1Q2019 financial result, incorporating the changes due to considerable deviation of results from its estimates amid deterioration in margins. PSMC posted a disappointing result for 1Q2019, wherein its loss per share rose to Rs11.92 as against EPS of 10.99 for the same period last year. The decline in earnings was due to the decline in gross margin by 5ppts to 3% for 1Q2019. Furthermore, finance cost rose to Rs327 million due to increase in borrowings (related to launch of new model Alto) and higher interest rate. Input cost has been on rise due to significant depreciation of Pak rupee and inflationary environment, of which company has nearly passed on 65-70% to end consumer. Considering the negotiations with IMF on bailout package, Rupee is likely to witness further depreciation and inflation is also expected to remain high, which will keep margins of PSMC under pressure due to its operations in price sensitive segment. Competition in small car segment (660CC-1000CC) is expected to intensify after new entrants. PSMCs main target market area is of small cars and entry of new players will pose a threat for PSMC in maintaining its current market share. KIA-Lucky Motors is expected to start booking in June 2019 for its new model Picanto (1000 CC) which will be a direct competition to recent successful Wagon-R/Cultus variants. PSMC has recently launched its 660cc Alto with three different variants, Alto 660 is Pakistan’s first locally produced 660cc engine capacity vehicle. Its booking has started with advance payment of Rs500,000. Alto can improve the revenue outlook of PSMC if it gains as much popularity as its predecessor, Mehran. The brokerage house believes market is incorporating expected decline in earnings and further rise in competition.

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