Oct 26 -  Nov 01, 1996

According to the company's financial results for the year ended June 30, 1996, the company's net sales grew by 38.6% over the last year from 5.7 billion rupees to 7.9 billion rupees. Likewise, the cost of sales increased by 29.2% from 5.4 billion rupees to 6.9 billion rupees. According to analysts, the increase in sales of the company is due to the marketing strategy adopted by the new management -- after the Japanese took over the management by buying up major share of the company -- one of the measures being introduction of a new model of its 1300cc Margalla car in the market.

The company was able to raise. According to Abdul Hamid Bhombal, the general manager, finance, of the company. "Upto June 1994, the company suffered losses because of the government's refusal to allow increase in price at the appropriate time."

The units sold during the period also increased from 25336 units last year to 28217 this year, sold 2881 more vehicles than last year, denoting an increase of 11.4% year, as against 38% increase in sales between the year 1994, when the auto market went into depression caused by the famous 'Yellow Cab Scheme', and 1995 when the market came out of depression and sales rose from 23,974 units to 25336.

The production of the company increase by 26.3% from 22202 vehicles in 1995 to 28040 vehicles, the reason for the huge difference in production was that the company reduced its production during the depression period due to sharp decline in orders from customers who had turned to yellow cabs. The entire stock of the leftover taxis from the scheme had to be disposed of before the company commenced the production of its 800 cc range.

The gross profit of the company increased sharply from 297 million rupees in 1995 to 917 million rupees this year, an increase of over 208%, while its margin of profit stood at 11.6% this year as against last year's 5.2%. This increase, analysts at UBS Global Research said, is due to the two per cent increase in local content level, which presently stands at 56% of total costs, higher prices, which the company was able to introduce after decontrol of prices by the government and more importantly a relatively stable rupee/yen parity.

The operating profit, went up from 199 million rupees in 1995 to over 772 million rupees this year, with operating margin of 9.7% as compared to last year's 3.5% despite an increase in operating costs which went up by 48% from 97 million rupees last year to 145 million rupees this year, an increase which is said to be due to increase in marketing, mainly dealer incentives, such as higher commission, development of private showrooms for the dealers and arranging workshops for their technicians.

Financial charges of the company decreased by 30% from 182 million in 1995 to 127 this year and "strong operating cash flows will help reduce the company's reliance on short-term borrowing which will further reduce the company's financial charges to 78 million next year." Global Research predicted.

Profit before tax increased from 22 million rupees last year to 743 million this year, while the profit after tax went up to 574 million rupees as against the loss of 5.9 million after tax profit last year and a 290 million rupees loss during the depression period of 1994. An accumulated profit of 40 million rupees has been carried forward this year as against over 534 million rupees loss that was brought forward from last year and 528 million the year before.


According to the results, a cash dividend of seventy paisa for each share or seven per cent has been proposed for the shareholders, which is very negligible. The share price of the company went down by two rupees the very day the results were issued and gained back the same amount the following day. Sources from the Karachi Stock Exchange said that the earning of the company was negative last year which was down by 12 paisa while this year it is 11.70. With dividend yield of 1.75% which is on the extremely lower side. It may be that is why the result did not bring any reaction at the market when it was announced other than its share price that went up by two rupees


According to analysts, since the auto sector is free to increase their prices now, a 9% increase in the company's prices and another 18% increase in production will bring a healthy result for the company by increasing its turnover by 24% by the year 1998, and on the cost side, a two per cent increase in the local content level will make the company less vulnerable to rupee depreciation against yen, which is forecast at 7% per annum.

The local auto industry which is coming out of depression could perform better, if the 10% regulatory duty and the 30% import tariff is reconstituted.