A Mammoth Industry Venture

Mar 19 - 25, 2007

Pak Suzuki Motor Company Limited is a public limited company with its shares quoted on the bourses of Pakistan. The company was formed in August 1983 in accordance with the terms of joint venture agreement between Pakistan Automobile Corporation Limited (representing Government of Pakistan and Suzuki Motor Corporation Japan). At this time SMC increased its equity from 25% to 40%. A share purchase from PACO eventually increased this to 73.09%. The company began commercial production in January 1984 with the primary objective of manufacturing, assembling and marketing cars, pickups, vans, and 4x4 vehicles in Pakistan. The company currently enjoys a market leadership position not only in the overall market for passenger cars and LCVs, but also in the segment responsible for the highest percentage of sales, i.e. the 800cc - 1000cc class.


As per the Auto Industry Development Program, the assemblers had to increase their production capacity to avail the incentives. Recently Pak Suzuki acquired 120 acres of land from Pak Steel Mills for the new plant at a total cost of Rs840m in January 2007. The new plant is expected to come online in 2010 with a total plant capacity of 30,000 units per annum in the initial year, taking the total capacity of the company to 200,000 units per annum. However, the maximum capacity of new plant is expected to gradually be enhanced to 100,000 units per annum, depending on demand, taking the total capacity for Pak Suzuki to 270,000 units per annum.


Indus Motors has been in talks with Toyota Japan for the past year to get approval for a new plant, which will enable the company to expand capacity from 50,000 units per annum currently to 100,000 units per annum. Honda Atlas, which has recently increased capacity to 50,000 annually, and as per future plans it will also go up to 100,000 units per annum keeping in view the demand supply situation.


Pak Suzuki has the most diverse product portfolio amongst the local assemblers. Sales performance of all its products was outstanding in 2006. Suzuki Ravi sales surged by 98% to 7,806 units, last year being 3,936 units. Sales of Suzuki Jeep increased by 57% to 1,666 units as against 1,060 units sold last year. In the 1000cc segment, sales of Alto and Cultus registered a growth of 48% and 33% to 19,670 units and 24,335 units respectively. In vans, Suzuki Bolan sales were up by 34% to 12,034 units. Mehran remained popular in terms of volume as 36,255 units were sold, recording a growth of 9%.


Pak Suzuki already has the highest levels of deletion in the market, which reduce downside risk and protects the company against fluctuations in the exchange rate. As per the annual report of 2005, level of deletion achieved ranged between 52%-71%. Mehran has local content of 71%, Cultus 67%, Alto 65%, Baleno 60%, Ravi 68%, Bolan 62% and Potohar 52%.


The company posted 33% growth in the sales revenue to Rs. 47,188m on the back of 27% growth in sales volume during the CY06. Volumetric growth has been contributed by almost all the PSMC's brands but the major contribution has come from its 1000cc segment. Cost of sales rose by 31% to Rs. 41,627m as against Rs. 31,802m in CY05. Administrative and distribution cost rose by 165% and 49% to Rs. 503m and 365m respectively. Other income earned through bank deposits was up by 50% to Rs. 1,041m. Overall earnings of the company in CY06 were Rs. 3,350m, up by 50%, as against Rs. 2,237m in CY05.