STRONG GROWTH AT HINOPAK

BY M.K.AREOLA
Oct 19 - 25, 1996

The depression caused by the former government's transport scheme appears to be over

Hinopak Motors Limited, makers of Hino trucks and commercial vehicles in the country has finally straightened up after two years of market depression created by Nawaz Shariff's transport scheme popularly known as 'Yellow Cab Scheme'.

According to the company's trading results for the year ended in June 30, 1996 recently, the company's sales revenue which has gone down from Rs. 2.8 million during the Prime Minister's Transport Scheme to Rs. 1.8 million in 1994 has now picked up to Rs. 2.5 million at the end of its financial year in June, a growth of almost 103% over the previous year.

But the cost of sales, too has gone up twice as compared to the previous year. Cost of sales for the company during the previous year was a little over one million rupees which has gone up to over two million rupees this year.

Likewise, the production of the country's largest manufacturer/assembler of trucks and commercial vehicles has increased over the same period of last year. The gross profit of the company which was over Rs. 354 million during the Yellow Cab Scheme and went down to about Rs. 48 million during the depression has now improved to over Rs. 300 million, a surge of over 600%. And there has been an operating profit of Rs. 214 million this year as against a loss of over Rs. 15 million last year.

The pre-tax profit which dropped from Rs. 267 million during the Scheme's period to a mere Rs.7.9 million during the depression period further went down to a loss of Rs.65 million the following year which became profit of Rs.222 million again this year. The post-tax profit, too, which went down from Rs.168 million during the Scheme to a loss of Rs. 54 million the following year and further went down to Rs. 71 million in 1995 has now picked up to a profit of Rs.176 million this year.

This sudden change from loss to a huge profit within one year could be attributed to various factors which include the fact that the company is market leader and so when the market came back alive with increase in production the share of the market too increased.

Sources close to the company said that during the period when the market came to a standstill the company focused on institutional sales and made enough sale of its 28-seater bus to institutions like WAPDA, Pakistan Steel Mills and others.

Looking at the company's performance for the last five years, except for the depression year, the post-depression performance seemed to reflect the pre-scheme performance of the company in the market. In 1991, the company had total sales of over one billion rupees with a pre-tax profit of over Rs.1.9 million and post-tax profit of Rs1.3 million and the following year, in 1992, the total sales of the company went up to Rs 1.7 billion, made a pre-tax profit of over Rs 183 and post-tax profit of Rs 99 million while during the Scheme in 1993, the company made a total sales revenue of over Rs 2.8 billion, pre-tax profit of Rs 267 million and post-tax profit of Rs 168 million. The following year in 1994, following the change in government and the changing of the Scheme, the company's sales revenue went down to Rs 1.8 billion while its pre-tax profit went down to a little over seven million rupees and post-tax profit brought a loss of about Rs 54 million.

The company is said to have contributed over 46 million rupees to the national exchequer this year in the form of duties and taxes as against six million rupees during the same period of last year. Commenting on the sudden surge, Mohammed Z.A.Syed, the company's secretary and general manager finance said that the tax paid last year was based on a presumptive tax rate of 0.5% of the company's turnover, "while this year we pay the normal tax," he said.

Analysts in the auto industry are of the opinion that the company doesn't even have to pay anything for last year as it was undergoing losses and companies in such situation are normally exempted from tax.

Likewise, the company has recovered from the loss incurred last year to a profit this year -- with after tax profit of more than Rs. 176 million at the end of this financial year as against the loss of Rs. 71 million during the same period last year, and higher than the years before the transport scheme was introduced. To cope with the financial pressure the company had to transfer almost 70 million rupees from its revenue reserve last year which did not happen this year.

Shareholders

Consequently, the board of directors of the company in their recent meeting has recommended a final cash dividend of 35% and interim dividend of 15%, making it a total of 50% as well as a stock dividend of 20%, one bonus share for every five shares held.

Analysts in the stock market are of the opinion that the final dividend yield of the company, at just over six per cent, which can just as easily be achieved elsewhere, is lower than the average yield from the commercial banks which offer as high as 11% "therefore there is nothing so special in it," said a broker at the Karachi Stock Exchange.

Profit growth potential of the company is about ten per cent profit annually, and according to analysts in the auto industry, based on the situation in Afghanistan, which serves as a route between the country and the Central Asian Republics as well as the orders from the government and the military sector, it is expected to increase too, due to the general increase in infrastructure development in the country.

Hinopak Motors was the leader among the three players in the market even before the PM's Transport Scheme that was introduced in 1993 and according to sources in the market, every two out of three vehicles (in the bus range) on the road carry the 'HINO' logo.

Hino manufactures/assembles buses locally ranging from the 29-seater coach (8 tons) to the big 63 seater bus (28 tons) and enjoys 30% of the market in the LCV range and 25% of the market share in the coach range. It, however dominates the heavy commercial vehicles by holding on to 75% of the market, its overall share of the market is 62% which has since gone up to 66% after the depression period.

Depression

The depression was caused by the introduction of the PM's Transport Scheme in which certain banks were obliged to finance upto 90% of the vehicles if a tenper cent deposit was made by the investor, with the objective of improving the transport system and creating self-employment opportunities among the youth. Since it normally took about six months for the vehicle ordered from the manufacturers in Japan to reach the buyer, under the local assemblers' completely knock-down (CKD) system, the assemblers ordered a huge stock in anticipation of orders from the public, but before the arrival of the ordered kits the government changed and the scheme was scrapped leaving huge stocks with the assemblers to deal with.

During this period, in order to dispose of the huge stocks, the production of the three local manufacturers fell. According to market sources, the total truck and bus market which reached its peak of around 7,500 units during the Transport Scheme came down to only 1,700 units during the depression period and the political situation that followed brought the whole automobile market to almost standstill and as a result Hinopak's overall market dropped by 29.5 % though its market share continue to rise.

Recently, Pakistan Automobile Corporation (PACO) which holds 40% of the joint- venture sold 11% of its share to Pakistani public and the remaining to other investors. Now Al-Futtaim Industries of Dubai hold 59%, Hino Motors of Japan hold 20%, while the remaining 10% is held by Toyota Tsusho Corporation of Japan.