INDUS MOTORS COMPANY LTD. (IMC)

MULAZIM ALI KHOKHAR
RESEARCH ANALYST
Jan 14 - 20, 2008

COMPANY PROFILE

Indus Motors is an assembling, progressive manufacturing and auto marketing company. It is a joint venture between the House of Habib, Toyota Motor Corporation Japan (TMC) and Toyota Tsusho Corporation Japan (TTC). The Company is engaged in sole distributorship of Toyota and Daihatsu Motor Company Ltd vehicles in Pakistan through its dealership network. Her plant is the only manufacturing site in the world where both Toyota and Daihatsu brands are being manufactured.

The IMC is a limited company having share capital of Rs. 786 million with majority of share holding by ‘The House of Habib’ and has about 51.542million closely held shares which approximate to 65% of total outstanding shares i.e. only 35% free floating shares. The company’s Debt to Equity ratio stands at 45:55 with immense reserves amounting to Rs. 8.2 billion. Total assets of the company stand at Rs. 16.6 billions.

FINANCIAL ANALYSIS

Company achieved unit sales growth of 4%, which is higher, then industry unit sales growth of 2% for the first quarter ending September 2008. IMC sold 48,546 units worth Rs. 10.76billions for the first quarter as against 47,694 units worth 9699129 sold for the corresponding period in 2006 registering a net sales growth of 11%. The company’s annual sales for FY07 grew from Rs. 35.2 billions to 40.16 billions enrolling a markup of 14%. This shows a bit declining trend in sales with 3% less growth rate in the quarter as compared to annual growth. The company’s market share has enhanced to 28% while it was 24% for the FY07. The market share has been 23% in FY05 and 21% in FY06.

IMC'S FINANCIAL PERFORMANCE

AMOUNT IN MILLIONS

YEAR

SALES

COGS

PBT

PAT

SALES PER EMPLOYEE

EPS

DPS

STOCK PRICE

PAYOUT

1997

4,534

4,008

389

150

7.5

1.91

1.5

13.2

79%

1998

4,974

4,451

352

147

8.14

1.87

1.5

8

80%

1999

6,958

6,168

581

251

11.13

3.2

2

12.3

63%

2000

8,246

7,605

406

172

12.8

2.19

1.5

12.5

68%

2001

9,055

8,282

558

203

14.41

2.59

1.5

11.2

58%

2002

8,111

7,139

734

360

11.63

4.59

2

18

44%

2003

15,635

13,304

2,048

1,258

15.3

16

7

72.2

44%

2004

22,521

19,641

2,490

1,473

18.4

18.74

9

91.2

48%

2005

27,601

24,691

2,365

1,485

19.3

18.89

10

90

53%

2006

35,237

30,819

3,819

2,648

-

33.7

12

191

36%

2007

40,162

35,485

3,971

2,746

21.8

34.93

13

305.5

37%

5Year CAGR

21%

22%

14%

17%

7%

17%

13%

33%

.

YoY Growth
(FY 06 to 07)

14%

15%

4%

4%

-

4%

8%

60%

.

1QFY-07

9,699

8,681

967

629

-

8.01

.

200

.

1QFY-08

10,765

9,374

1414

920

21.8

11.71

.

307

.

YoY Growth
(FY 06 to 07)

11%

8%

46%

46%

-

46%

.

54%

.

Cost of Goods Sold for the 1QFY-08 was Rs.9.4 billion while for the corresponding period last year (1QFY-07) were Rs.8.7 billions showing 8% growth. It has shown a declining trend in the current quarter as compared to last years’ COGS growth of 15% for the FY-07 from Rs.35.5 billion to Rs.30.8billion. The other side of the picture shows that inventories have grown tremendously from Rs.2.9 billions to Rs.3.5 billions marking 30% of growth. This is not a good sign for the next quarter performance as it will increase costs and is indicating expected sales decline.

Profit after tax has grown impressively with 46% YoY for the 1QFY08 amounting to Rs.920 million as compared to Rs. 629million (PAT) for the 1QFY07. This has been possible due to decline in their financial costs, which subsequently reduced the tax impact. Looking at the annual figures of FY07, we see that the PAT growth was only 3.65% from 2.6billion to 2.74billion rupees. Even though the 1QFY-08 performances is good the expected annual PAT may not cross the last year PAT margins due to feared decline in auto sales because of economic discrepancies and hiking energy prices

The company currently employs 1,429 people. With sales of Rs. 35.24 billion Pakistan, this equates to sales of Rs.21.8million per employee. This is much higher per employee sales performance showing how efficient their current performance is.

DIVIDEND ANALYSIS

IMC has always paid decent amounts of dividends ranging from 37-80 percent. The dividend payout ratio is has been declining continuously mostly due to their growth purposes. This has increased their reserves and subsequently reduced the interest expenses infact it has resulted in net positive impact for the company of about Rs.15.54million. The dividend for last year (FY07) marked 13% growth with Rs.13 per share while it paid Rs.12 per share for FY06.

AUTO INDUSTRY ANALYSIS

Auto industry witnessed tremendous boom for the last few years due to inspiring economic and financial market growth. Especially emergency of auto leasing in Pakistan the auto sales had jumped like anything. But time seems changing its face the other way and the industry is feared to suffer losses in their estimates. There are many reasons to believe this, such as;

  • Global Oil and Financial crisis are feared to negatively impact the domestic oil and financial sectors especially the leasing and credit as they have already increased estimated bad debts index.
  • The increasing inflation, and feared GDP decline has started pessimistic estimations on roughly all the major sectors including auto sector.
  • Rising cost of steel (a major raw material) and exchange rate hikes are potential threats to auto assembler’s profits.

Auto sector had already decline with 3.72% having unit sales sliding from 755558 units per year in FY06 to 727491 units per year in FY07. The segment has further decayed by 1.4% in 1QFY-08 where its sales stand at 353 thousand units as compared to corresponding period sales of 357 thousand units.

All this is indicating that the auto sector is most likely to be revised down hills and their performance will decline having some negative impacts on their financial performance and IMC is no exclusion to it.