AUTO & ALLIED

Key players in the economy

By AMANULLAH BASHAR
Apr 10 - 16, 2006

The material universe exists only in the mind. It is the thought that can move men and the world and that idea of replacing auto rickshaws by a 200cc Mini car conceived by a local vendor Fasih Hussain Agha is exactly bound to move at least the transportation and environment map of Karachi which looks to be the most polluted city in this region.

The Mini car "Alif" which denotes the first Urdu has already started to make its presence felt in the domain of automobile industry.

Showcasing the unique features of the little creature, Mohammad Khan, the Sales Executive at the display center offered me an exciting drive from Awari Towers to Karachi Press Club in his tiny car which moves confidently side by side with the glittering, luxurious and costly foreign brands vehicles. During that short drive which proved to be a pleasant surprise Mohammad Khan added to my pleasure when he told that the city government has already approved this small creature to replace the noisy and smoke emitting auto rickshaws with Alif by 2007.

This small car has been designed in conformity to the social demands in our culture. Usually, women folk avoid traveling alone in a taxi because its doors are closed and they prefer to go in auto rickshaws because they are open without doors. Keeping that aspect in mind the designers have kept the side doors of the mini car without glasses making the commuters visible from both sides. As far as the price was concerned it is almost matching to the prices of auto rickshaws as its initial price is Rs150,000 plus 15 percent sales tax that makes it as much as Rs175,000. This small creature offers the CNG provision as well. The average mileage while moving on gasoline is 25km per liter which fuel consumption can further go down if CNG is allowed.

It gave me a great pleasure to know that the small car has succeeded to attract the export market as well as the Sudan has become the first major buyer of these small cars while individuals from Qatar, Oman and other middle eastern countries have also placed orders for this new arrival in the automobile industry.

Mohammad Khan said that initially around 70 percent of the parts are locally made while its engine is powered by Chinese technology. Besides a successful business venture, these small cars branded with the name of "Alif" and "Bay" the first is passenger car while the other is pick-up for loading purposes.

Another interesting feature of this small vehicle is its spares. Since over 70 percent parts are being produced by the same vendors who are supplying parts to Suzuki cars, the parts are easily available in the market.

Initially, the Transmission Motor Company, the producer of this small car has a production capacity of 6000 units per annum; however the company would have to expand the capacity in view of the demand if the idea of removing auto rickshaws was really implemented by the people at the helm of affairs. In fact the ideas remain as dreams unless they are executed. Apart from profit making business venture it would be a social service as well because it would help a lot to provide a healthy environment to the people of Karachi who are bound to inhale into highly dangerous environment polluted by smoke emitting vehicles besides facing the music of noise pollution.

PAK SUZUKI PLANS 250,000 UNITS PER ANNUM BY 2010: Coming back to the mainstream automobile industry, once comes to an impression that currently, the auto industry is undergoing hefty expansions due to the firm demand outlook ensuing from aggressive lease financing and growth in individual incomes.

To cater this growing demand, Pak Suzuki is pursuing an aggressive capacity expansion plan.

Pak Suzuki's approved capital expenditure for the year 2005 was approx. Rs2.36billion. In this regard, the company has already completed its first and second expansion phase by enhancing its production capacity from 50,000 to 80,000 and then to 100,000 units per annum. Going forward, the company intends to enhance further its production capacity to 250,000 units per annum by 2010.

INSTALLED CAPACITY & PRODUCTION OF VEHICLES / AUTOMOTIVES

Installed Capacity

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-05

CARS

164,000

32,461

39,573

41,233

63,095

98,461

126,403

LCVs

32,500

7,036

7,424

9,055

12,548

14,896

25,177

Buses

3,900

1,460

1,326

1,086

1,296

1,380

1,762

Trucks

17,500

913

912

1,134

1,929

2,022

3,204

Tractors

50,000

34,559

31,635

23,801

26,240

35,770

43,200

Motorcycles*

733,000

86,959

108,850

120,627

165,105

*303,262/

*416,189/

* 6 Major Players only

Total production of Motorcycles in the Country including new entrants from China

The financial performance of Pak Suzuki on the back of robust growth in demand and production indicates its earnings increased by 53% to Rs2, 154million in 2005 as against Rs1, 404million last year. This translates into an EPS at Rs39.80 compared to Rs25.90 during the corresponding period last year. This growth is to result from an increase in sales volumes and stable margins ensuing from sustained sales costs coupled with the impact of weakening yen value and lowering steel prices during the period. Total sales volume of the company is anticipated to increase by 31% to 85,617units as against 65,120units last year. Financial cost and other income are also anticipated to depict increment at 252% and 176% respectively. Going forward, the profitability prospects of Pak Suzuki are sanguine on the back of aggressive capital expenditure plans in order to enhance the production capacity and meet the ongoing demand growth.

Pak Suzuki's January - September 2005 earnings depicted a 38% increase to Rs1, 496million (EPS: Rs27.68) as against Rs1, 082million (EPS: 20.02) during the corresponding period of the preceding year. Improved profitability emanated from the dual impact of increase in sales and other operating income. Sales of the company registered a growth of 46% to Rs26, 467million compared to Rs18, 173million previously. Gross margins of the company declined by 1pps to 9%, though gross profit of the company increased by 32% to Rs2, 462million. Other income of the company depicted 208% massive increment to Rs393m attributable to higher interest earned on deposits. Profit from operations also surged by 44% to Rs2, 555million compared to Rs1, 780million last year. However, 279% increase in financial charges and 1pps increment in the effective tax rate restricted the growth in the bottom line. The increase in customer advances and higher markup rates were primarily responsible for the extraordinary hike in financial charges.

According to the figures released by the Pakistan Automotive Manufacturers Association (PAMA), car sales during the first eight months of FY05 stood at 95,161units while LCV and truck and buses sales stood at 22,727units. It is pertinent to mention that despite the liberalization of used cars import and rising interest rates, the performance of the auto sector has remained robust. During the period, total sales volume of Pak Suzuki stood at 57,083units with Baleno at 3,173units, Cultus at 12,316units, Alto at 9,265units, Mehran at 22,367units, Bolan at 6,260units and Liana at 103units.

INDUS MOTORS

Indus Motors, another major player in the auto world has enhanced its production capacity to 44,000 units per annum during first half of the current financial year. The company is also planning to achieve 52,000 units per annum production level by the end of the current fiscal.

During the first eight months of FY05, the automobile industry continues to depict a steady sales growth at 27% to 114,521 units in the passenger cars and LCV segment. Industry production also posted 31% upsurge to 116,503 units as against 88,537 units previously.

Moreover, Indus Motor's sales and production stood at 25,661 units and 26,389 units during the period, depicting 15% and 18% respective increment over the same period last year. The company has set its FY06 annual production target at 44,000 units.

The Earnings of the Indus Motors for the current financial year depicted a 55% growth at Rs1, 510million as against Rs973million during the same period last year.

This translates into an EPS at Rs19.20 compared to Rs12.38 previously. The growth in profitability is mainly attributable to higher sales and operational efficiencies coupled with appreciation in Rupee value against Japanese Yen. Gross margins of the company depicted 146bps increment to 10.6% with gross profit soaring by 44% at Rs2, 649million compared to Rs1, 832million previously. It is expected that Indus Motor's CKD sales during the period at 28,961 units, 13% higher as against 25,594 during the same period last year.

Indus Motors posted 50% upsurge in its earnings during first half of the current financial to Rs1, 073million (EPS: 13.66) compared to Rs717m (EPS: 9.13) for the same period last year. Net sales and cost of sales both soared 26% to Rs16, 398million and Rs14, 730million respectively, thereby enabling gross margins to remain almost intact at 10.2%. Distribution costs, administrative expenses, other operating expenses and finance costs were respectively higher by 21%, 22%, 63% and 82%. However, a substantial 231% increment in other operating income neutralizes the impact of soaring operating expenses and boded favorably to the bottom-line. The company also declared Rs5.0/share interim cash dividend for the period.

The medium-term outlook for the auto sector expected to remain sanguine on the back of aggressive lease financing and growth in individual incomes.

Furthermore, the margins of assemblers are also expected to remain firm on the back of Yen depreciation, sustained steel prices and rising focus towards trading business. However, in the longer term the sector could face challenges on the effect of tariff and import liberalization.