RECORD PROFITS AT ALTAS HONDA

By Syed M. Aslam
Oct 19 - 25, 1996

Atlas Honda Limited, the local manufacturer of Honda motorcycles, earned a record pre-tax profit of Rs 176.077 million for the year ended June 30, 1996.

Honda which changed the accounting year from December closing to June closing according to a directive of the government, had earned a pre-tax profit of Rs 15.667 million for the half year ended June 30,'95 and a much smaller pre-tax profit of Rs 18.707 million for the year ended December 31, '94.

Talking to PAGE the chairman of Atlas Honda, Yusuf H. Shirazi, said that the Company made the highest ever profit this year mainly due to record production and sales and by enhancing its market share nationwide to 58 per cent, and favourable Rupee-Yen exchange rate.

Honda, he informed PAGE, produced and sold some 65,000 units of both its CG 125 and CD 70 versions this year.

Talking to PAGE an analyst at Khadim Ali Shah Bukhari said that Honda was able to achieve such financial results mainly due to a stable Dollar-Yen parity which ultimately affects the imports from Japan particularly the local motorcycle manufacturers. In addition, Honda pushed its market share of the national two-wheeler market at least by 5 per cent to 58 per cent which could have primarily been attributed to a better marketing strategy.

For the year ended June 30, '96 Honda registered a sales of Rs 3.092 billion compared to Rs 1.069 billion during the first six months of '95 when it closed the accounts for the period ended June 30, '95 which, based on its six months performance could have come to Rs 2.138 billion. Thus sales grew by an estimated 44 per cent.

The cost of sales stood at Rs 2.754 billion compared to Rs .989 billion during the first six months of '95. Honda was able to cut the cost of sales as percentage of sales to under 89 per cent in '95-96 compared to over 92 per cent during the six months ended June 30, 95.

Honda earned a gross profit of Rs 338.416 million and an operating profit of Rs 212.267 million compared to Rs 80.3 million and Rs 30 million during the six months ended June 30, 95 respectively. Annualizing the gross and the operating profit at Rs 160 million and Rs 60 million, the two respective profits depict over 110 per cent and 255 per cent increase for year ended June30, '96 compared to six months ended June 30, '95. While it is still too early to ascertain the factors that contributed to such fantastic financial results, an analyst told PAGE that though many price increases that Honda announced during '95-96 could have been one of the major factors, it could not be singled out as it is directly related to production costs. Market sources informed PAGE that the prices of two brands of Honda motorcycle, CD 70 and CG 125 which were selling for Rs 53,800 and Rs 64,200 respectively in May '95 stood at Rs 58,300 and Rs 68,200 respectively in June this year.

The operating expenses (administration and marketing) of Rs 126 million as percentage of gross profit was reduced to under 37 per cent during the year compared to little over 62 per cent for six months ended June 30, '95.

With 'Financial and Other Charges' of Rs 49.302 million and 'Other Income' of Rs 13.112 million Honda earned a pre-tax profit of Rs 176.077 million while its after-tax profit soared to Rs 102.6 million as it paid taxes of Rs 73.412 million compared to Rs 5.349 million for the six months ended June30, '95.

The meeting of Honda's board of directors held on the 14th of this month has recommended a cash dividend of 15 per cent and Bonus Shares issue at the rate of 10 per cent or one bonus share for every ten shares. This translates into a dividend yield of 5.55 per cent at the trading of Rs 27 at KSE on Tuesday last week. This also translates into earning per share (EPS) of Rs 8.5 and the price earning ratio of 3.2 per share.

Honda in its report for six months ended June 30, '95 had said that the imposition of 15 per cent sales tax in mid '94 had shrunk the motorcycle market by 40 per cent during the first six months. The report also said that the motorcycle market would increase to 110,000 units in '95-96 and had expected that the same would yield better results for the Company as it would be able to capture an estimated 60 per cent of the market share.

Certainly Honda came close to capturing the estimated market share and in the process was able to achieve an all-time high production, sales, and profit.