INDUS MOTOR COMPANY LIMITED

MARIAM NASIR
Manager Research
Oct 01 - 07, 2007

ABOUT THE COMPANY AND GROUP

Indus Motor Company Limited was incorporated in Pakistan as a public limited company in December 1989. It started commercial production in May 1993. The shares of company are quoted on stock exchanges of Pakistan. IMC's production facilities are located at Port Bin Qasim Industrial Zone near Karachi in an area measuring over 105 acres. Its plant is the only manufacturing site in the world where both Toyota and Daihatsu brands are being manufactured. House of Habib (HoH) is the majority shareholder in Indus Motor Company Limited. HoH was established prior to independence and is known for its pioneering spirit. HoH partners with leading international brands in the field of engineering such as Toyota, Nippon and Denso. Besides Indus Motor, some leading companies which the group owns are Habib Bank A.G Zurich, Metropolitan Bank and Habib Insurance.

FINANCIAL HIGHLIGHTS OF FY07

Sales revenue for the year FY07 increased by 11% to a record of Rs.39bn compared to Rs.35bn in FY06. Another important contributor to the company's profitability has been their trading business. Net sales of the trading business increased by 29% to Rs5.0bn from Rs3.9bn in FY06. This has been a result of increase in parts sales which have for the first time crossed the Rs1bn mark, with a growth of 27%. Contribution of trading sales to total sales of the company stood at 18.5% in FY07, rising from 17.0% in FY06. Achievement of higher sales volume, efficient operations and favorable exchange rate contributed to the overall earnings and enabled the company to absorb cost push inflationary pressures emanating from high fuel prices in order to provide maximum value and relief to its customers. Indus Motors, in parallel to other assemblers, has been increasing its selling expenses over the years. Company's selling expenses have grown to 1.2% of net revenue, and Rs9,043/unit during FY07. Other income that has remained a major contributing factor towards the bottom-line growth of the company in yester years has started to recede on the back of falling customers' advances amid improved delivery periods. In FY07, other income saw 8% decline at Rs935m with is share in before tax profitability declining to 22% from 25%, previously. The company completed its expansion in the last years and managed to reduce its financial and other charges by 82% to mere Rs.23m. On the whole net profitability of the company surged by 4% to Rs.2.75bn (EPS: Rs.34.93) compared to Rs.2.65bn (EPS: Rs.33.70) last year. Company also announced cash dividend of Rs.13//share in FY07, which was higher by a rupee over the last year.

(YEAR ENDING JUNE)

FY06

FY07

CHG %

Net Sales Revenue

35,237

39,061

11%

Cost of Sales

31,089

34,621

11%

Gross Profit

4,148

4,441

7%

Sell & Dist Expense

969

1,124

16%

Operating Profit

3,179

3,317

4%

Other Income

1,021

935

-8%

Financial & Other Charges

127

23

-82%

Profit Before Taxation

4,073

4,229

4%

Taxation

1,424

1,484

4%

Profit After Taxation

2,648

2,746

4%

Diluted EPS (Rs.)

33.70

34.93

4%

DPS (Rs.)

12.00

13.00

 

Gross Margins (%)

12%

11%

 

Operating Margin

(%)

9%

8%

Net Margin

(%)

8%

7%

Toyota (Units)

30,527

35,762

17%

Cuore (Units)

7,883

12,776

62%

Hilux (Units)

2,551

52

-98%

NO MAJOR EXPANSION TILL 2010

The expansion plan of Indus Motor largely depends on market dynamics and the government's future policies. The company has, however, expanded its plant capacity to 72,000 units per annum. It also plans to increase its production capacity contingent to approval of this plan by the parent company, Toyota Global.

DEALERSHIP NETWORK EXPANSION

With increasing motorization, the auto market is expanding and the company wants to continue to play a lead role. Apart from introducing new products and auto solutions the company is enhancing its spatial presence of dealership network.

FUTURE OUTLOOK

Indus Motor Company has unveiled the new version of Hilux along with its annual report of FY07 while the official launch is expected in 2Q/FY07. Unlike its predecessor, the new Hilux seems to be targeted towards high-end customers rather than the conventional LCV segment. The new model shall change product mix whereby some production of Coure will be sacrificed to accommodate Hilux since the company is operating at close to 100% utilization levels. Company is well poised towards growth in the years to come. The only disturbing factor is the Rupee/Yen parity and higher steel prices.