INDUS MOTOR COMPANY LTD

S.M. ABBAS ZAIDI,
Research Analyst
, PAGE
Jan 26 - Feb 01, 2009

Indus Motor Company (IMC) is a joint venture between the House of Habib, Toyota Motor Corporation Japan (TMC) and Toyota Tsusho Corporation Japan (TTC) for assembling, progressive manufacturing and marketing of Toyota vehicles in Pakistan since July 01, 1990. IMC is engaged in sole distributorship of Toyota and Daihatsu Motor Company Ltd Vehicles in Pakistan through its dealership network. The company was incorporated in Pakistan as a public limited company in December 1989 and started commercial production in May 1993. The shares of company are quoted on the stock exchanges of Pakistan. Toyota Motor Corporation and Toyota Tsusho Corporation have 25 % stake in the company equity. The majority shareholder is the House of Habib. IMC's production facilities are located at Port Bin Qasim Industrial Zone near Karachi in an area measuring over 105 acres. Indus Motor Company's plant is the only manufacturing site in the world where both Toyota and Daihatsu brands are being manufactured. Heavy investment was made to build its production facilities based on state of art technologies. To ensure highest level of productivity world-renowned Toyota Production Systems are implemented. IMC's Product line includes 6 variants of the newly introduced Toyota Corolla, Toyota Hilux Single Cabin 4x2 and 4 versions of Daihatsu Cuore. Toyota also has a wide range of imported vehicles.

PRODUCTION & SALE OF INDUS MOTORS
. JULY'08 AUG'08 SEP'08 OCT'08 NOV'08 DEC'08 CUMULATIVE
TOYOTA COROLLA
Prod. 379 471 1,697 2,902 3,053 1,628 10,130
Sale 298 341 1,280 2,905 3,030 1,253 9,107
DAIHATSU CUORE
Prod. 1,032 1,013 718 640 530 70 4,003
Sale 918 905 917 604 173 87 3,604
TOYOTA HILUX
Prod. 160 150 165 123 112 1 711
Sale 81 123 145 180 45 46 620
Source: PAMA

PAKISTAN AUTOMOBILE MARKET

The domestic automobile industry recorded the largest ever drop in volume with sales of locally assembled Passenger Cars (PC's) and Light Commercial Vehicles (LCV's) declining by 44% to 27,159 units from 48,559 units for the quarter ended September 30, 2007. This extraordinary decline in volume for the quarter is due to the impact of political uncertainty and drastic slow down in the economic environment of the country resulting in rising interest rates, limited credit availability for auto financing, depreciation of the Pak Rupee against all major currencies and unprecedented rise in prices of oil, steel and other inputs causing high inflation and severe volatility in the market place. Post budget measures like imposition of 5% Federal Excise Duty on cars above 850cc, imposition of Withholding Tax at the registration stage, increase in custom duty from 90 to 100% on imported cars above 1800cc and additional regulatory duty of 50% on high end vehicles all added up to create a negative impact on sales in auto industry. The auto industry and its vendors who invested heavily for growth are fighting hard to survive in this difficult business environment of extremely low sales. There should also be focus on long-term sustainable steps to Encourage growth of the automobile sector which is a key driver for economic growth, technology transfer and a creator of jobs.

FINANCIAL PERFORMANCE

The combined sales of Toyota and Daihatsu brands, both CKD and CBU, for the quarter ended September 30, 2008 declined by 61% to 5,335 units as compared to the record 13,738 units for the corresponding period in 2007. Production of PC and LCV for the quarter ended September 30, 2008 was also down 56% to 5,785 units versus 13,158 units produced in the same period in 2007, mainly due to political and economic volatility in the country, the planned run out phase of the previous Corolla model, plant shutdown for refurbishing to cater for new Corolla launch and gradual ramp up of new model. The Company's revenues for the quarter ended September 30, 2008 was down 52% to Rs 5.2 billion compared to Rs 10.8 billion for same quarter last year, while profit after tax dropped 95% to Rs 48 million from Rs 921 million due to fall in sales volume and margin on account of rising costs which the Company was unable to pass through to customers.

FINANCIAL PERFORMANCE
RATIOS 30, SEP 2008
Current Ratio 1.91
Quick Ratio 0.82
Return on Assets 0.31%
Return on Equity 0.53%
Profit Margin on Sales 0.93%
Total Assets Turnover 0.33
Fixed Assets Turnover 1.25
Inventory Turnover 0.77 times
Earning Per Shares (Rs) 0.61
Source: Indus Motors

FUTURE OUTLOOK

The Business environment is likely to become more difficult in view of the worsening macro economic situation in the country and fears of global economic recession emanating from major financial crises abroad. As a result, we can expect the auto sales demand in the domestic industry for the year 2008-09 to decline over last year. Raw material, energy and other input costs together with further depreciation of the Pak Rupee and higher interest rates will continue to exert upward pressure on costs and retail selling prices. The 10th Generation Corolla was launched on August19 and has been reborn as a luxurious car, with advanced features and even more modern and stylish design. It has been received well by our customers and has led to impressive order inflows. However, due to the current economic climate, there unit margins are expected to remain under pressure and the strategy should be to focus on improving operational efficiencies, maintaining high quality standards and in delivering maximum value to customers.