Report on Atlas Honda Car 2022

Ratio Analysis of Honda Atlas Cars Pakistan (2022)

Global Scenario Auto Industry

The automotive industry is considered as an economic heavyweight due to which it has acquired the status of a key sector of the economy for every major country in the world. The annual global turn over of auto industry during the year 2005 remained $2.8 trillion while the size of trade has grown to a massive level of $ 1,016 billion, which represents 9% of the world merchandise trade. In 2006, over 69 million motor vehicles including cars, vans, trucks, buses and coaches were produced worldwide. In 2006 Japan (11.484 million units), US (11.264 million units), China (7.189 million units), Germany (5.820 million units) and South Korea (3.840 million units) were the top five motor vehicle producing countries in the world.

Auto industry employed directly over 5% of the world’s total manufacturing labor force and contributed over $ 634 billion in tax revenues of twenty countries only. The auto industry is one of the largest investor in Research and Development, which help to increase the technology level in other industries as well.

Crisis in World Automobile Industry

The automotive industry crisis of 2008–2009 was a part of a global financial downturn. The crises affected European and Asian automobile manufacturers, but it was primarily felt in the American automobile manufacturing industry. The downturn also affected Canada by virtue of the Automotive Products Trade Agreement.

The automotive industry was weakened by a substantial increase in the prices of automotive fuels linked to the2003-2008 energy crisis which discouraged purchases of sport utility vehicles (SUVs) and pickup trucks which have low fuel economy. The popularity and relatively high profit margins of these vehicles had encouraged American "Big Three" automakers, General Motors, Ford, and Chrysler to make them their primary focus. With few fuel-efficient models to offer to consumers, sales began to slide. By 2008, the situation had turned critical, as the global financial crisis and the related credit crunch placed pressure on the prices of raw materials.

Car companies from Asia, Europe, North America, and elsewhere have implemented creative marketing strategies to entice reluctant consumers as most experienced double-digit percentage declines in sales. Major manufacturers, including the Big Three and Toyota offered substantial discounts across their lineups. The Big Three faced criticism for their lineups, which were seen to be irresponsible in light of rising fuel prices. North American consumers turned to higher-quality and more fuel-efficient product of Japanese and European automakers. However, many of the vehicles perceived to be foreign were actually "transplants," foreign cars manufactured or assembled in the United States, at lower cost than true imports.

Pakistan Automobile Industry

Pakistan Automobile Industry produced its first vehicle in 1953, at the National Motors Limited, established in Karachi to assemble Bedford Trucks. Subsequently buses, light trucks and cars were assembled in the same plant. The industry was highly regulated until the early 1990’s.

After deregulation major Japanese manufacturers entered in the market thereby creating some competition in this sector. Assemblers of HINO Trucks, Suzuki Cars (1984), Mazda Trucks, Toyota (1993) and Honda (1994) in particular, entered once deregulation was introduced. Assembly of Daihatsu and Hyundai cars (1999) and various brands of LCVs and range of mini-trucks commenced recently.

Pakistan auto industry observed a “Preparation Phase – 1985-05” which was based on the formulation and implementation of compulsory local content conditions, commonly referred as deletion program.

The auto industry has recently entered into a “Development Phase – 2005-12” where the consolidation of initial achievements has started taking place alongside the development of strategy to shape the industry in the new competitive environment.

Auto Industry Development Program

The need for a development

programme for the auto industry

was realized at the time of

elimination of local content

conditions when the tariff policy has

been a major instrument to push for

the development of parts and

components locally alongside

encouraging the assembly of

vehicles. The industry while

embracing the TBS and entering in

the development phase was faced

with the issues of competitiveness,

productivity of level and scale, low

technology level, research and

development, supply chain and

human resource management. This

was coupled with the challenge of

continuing rapid growth phase of

last 5 to 6 years. The expectations

of the government on taking the

industry global and achieving the

scales in production and meeting the

objectives of job creation, skill

development, investment and

stimulating the innovation without

any cogent plan, would have been

difficult to realize. Developing the

quality and safety standards and

producing environment friendly

vehicles, meeting the consumers’

expectations remains the

cornerstone of policy framework

which would be facilitated through

government intervention.

While formulating the AIDP

following objectives were agreed;

• Long term investment

• Encourage growth

• Promote domestic competition

• Enhance competitiveness

• Stimulate innovation

• Facilitate auto industry’s

integration into the global

supply chain

• The used vehicles import policy

will be regulated so as not to

impede the growth of the local

industry while protecting

consumer interest

Auto Industry Development Program Projections

Automobile Industry - Challenges and Opportunities

Once a burgeoning industry, our auto manufacturing has gone through a bumpy drive during the last one and a half year or so. The consumer credit crunch triggered partly by the global financial meltdown and partly by our political and economic inaptitude has thrown the industry in a tailspin. The worst hit has been the cars segment, which recorded a 46 per cent drop in production during FY09. The drop in production followed a matching drop in sales. The industry posted a mammoth job loss. The following table presents a two-year comparative view of auto production.

VEHICLE	NOS. PRODUCED YEAR 2008-09	NOS. PRODUCED YEAR 2007-08	MINUS PLUS %	NOS. PRODUCED JUNE 2009	NOS. PRODUCED JUNE - 2008
Cars, Jeeps, L.C.Vs	101,398	187,654	-46	8,153	13,825
Motor Cycles	912,067	1057,751	-14	102,265	81,173
Tractors	60,107	53,607	+12	6446	5665
Trucks	3,135	4,993	-4	369	623
Buses	657	1,146	-4	84	89

For any industry, a number of variables ascertain the demand level. In case of our automobile industry, the demand level is a function of population and family income. We have a negligible size of export market due mainly to the lack of any competitive edge. The production capacity is variable and can be scaled up or down, should there be no social or economic constraints. There are generally no social constraints attached to owning or driving a car, a motor cycle, a truck, a bus, or a LVC, but there are a number of economic constraints. The major constraints include raw material, technological, and skilled labor. These major issues contribute to the high-cost production in the industry.

Auto industry's reliance on imported parts and material when seen in the backdrop of a depreciating rupee vividly explains its low share in the export market. By default, it is a self-sufficient industry fully catering to the domestic market. Our domestic market has great potential for the auto sector to develop. The ever-deteriorating and now almost intractable public transport system has awakened the masses to the need of owning personal transport means, even at the cost of food and clothing.

Until 2007, the easy access to consumer credit drove the herds of masses to the doorsteps of banks and financial institutions. As a result, the auto industry went into the boom cycle. This brought about a positive social change in the society. Economic pundits criticized that era as unsustainable consumption-based-growth era. They might be feeling relieved to see their prophecy come true. However, let me say this relief is not genuine. It was not the consumption-led-growth theory that failed rather it was the incongruity and hollowness of our political and economic systems that brought about the untimely downfall of this industry, the negative contribution of the financial global meltdown notwithstanding.

The potential of the industry - with its reliance on domestic market - is still intact. The bank liquidity is improving, the illogically high bank rate is under an all-round fire and is bound to come down to the realistic level. The banks have learned a lot about how to ensure the quality of their assets. The high ratio of auto finance NPL was not an outcome of a bad-borrower selection policy, rather it was caused by an unexpected fall in disposable incomes and ever-rising cost of debt servicing. Auto financing is the surest form of bank lending, as the default-driven repossession of asset invariably suffices the liability write-off. A number of positives on both domestic and international fronts herald a better economic era. The auto industry is set to revisit the recent past. The South Asia

Investor Review Reports:

"Given strong underlying growth dynamics in South Asia, the negative feedback effects of the global financial crisis are expected to be temporary. A relatively rapid rebound is expected in 2010, with a projected revival of GDP growth to 7.2 per cent. The long-term prospects for the auto industry in the continent of Asia appear to be quite favorable. As the current financial crisis ebbs, there will be significant pent-up demand for our automobiles in Asia including India, Pakistan, and China, that will drive the growth in industry."

Therefore, our domestic demand for auto products has neither reached saturation, nor it has indicated a sign of dying. It is the case of pent-up demand that is bound to have its way as soon as the conditions improve. The improvement of conditions include, proper inflation control by the government to reduce pressure on disposable incomes, the removing of lid by the banks and NBFIs from auto lease business, the further lowering of policy rate by SBP to make auto financing a viable proposition both for the lenders and the borrowers, and expansion of auto industry base to ensure cost effective production and marketing of auto products at competitive prices.

While the federal government, the State Bank, the financial sector, the industry, and the potential consumer market are the main players, the role of city governments is equally important as they can ensure proper infrastructure for hassle-free plying of ever-increasing number of private and commercial vehicles. In case of major urban cities, the relevant city authorities have huge responsibility towards their citizens.

A Plan with China

An automotive assembly plant would be set up in Punjab with the help of a Chinese company at a cost of US $ 30 million. Agreement to this effect was signed at Chinese major city, Mianyang, between Commerce and Sourcing House (CASH) a Pakistani company registered in Hong Kong and Shenzhen and Mianyang Huarui Automotive Co.Ltd. The signing ceremony was attended by Masood Akhtar, who is the Consul General of Pakistan in Chengdu and Liu Dong, who is the Mayor of Mianyan. Chengdu is the sister city of Lahore. Mianyang is the second largest city in Sichuan province. Mianyang Huarui Automotive Co., Ltd is a part of Brilliance Jinbei Automotive Group. The plant will be established in an area of 51 acres. The proposed company will have the capacity to build 50,000 vehicles per annum. Both parties will hold 50 percent share of the proposed company.  Based upon preliminary data gathered here, the assembled vehicles will consist of 1.5 to two ton single and dual cab trucks, Jeeps, single/dual cab pick‑ups and mini‑vans. However, the final product mix and volumes will be decided in May this year after the joint visit by both companies to Pakistan for a detailed market survey. Commerce and Sourcing House in collaboration with Board of investments in Islamabad also plans to bring a group of 20 Chinese investors to Pakistan .

Plant Capacity

Pak Suzuki Motor Co. Ltd. 68,000

Indus Motor Co. Ltd. 50,000

Honda Atlas Cars (Pakistan) Ltd. 30,000

Dewan Farooque Motors Ltd. 15,000

Ghandhara Nissan Ltd. 6,000

 

Honda Japan

Honda Motor Co., Ltd. operates under the basic principles of "Respect for the Individual" and "The Three Joys" — commonly expressed as The Joy of Buying, The Joy of Selling and The Joy of Creating. "Respect for the Individual" reflects our desire to respect the unique character and ability of each individual person, trusting each other as equal partners in order to do our best in every situation. Based on this, "The Three Joys" expresses our belief and desire that each person working in, or coming into contact with our company, directly or through or products, should share a sense of joy through that experience.
In line with these basic principles, since its establishment in 1948, Honda has remained on the leading edge by creating new value and providing products of the highest quality at a reasonable price, for worldwide customer satisfaction. In addition, the Company has conducted its activities with a commitment to protecting the environment and enhancing safety in a mobile society.

The Company has grown to become the world's largest motorcycle manufacturer and one of the leading automakers. With a global network of 507* subsidiaries and affiliates accounted for under the equity method, Honda develops, manufactures and markets a wide variety of products, ranging from small general-purpose engines and scooters to specialty sports cars, to earn the Company an outstanding reputation from customers worldwide.

It has167,231 employees and its capital is ¥86 billion.

HONDA ATLAS CARS PAKISTAN

Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor Company Limited Japan, and the Atlas Group of Companies, Pakistan.

The company was incorporated on November --, 1992 and joint venture agreement was signed on August ---, 1993. The ground breaking ceremony was held on April 17, 1993 and within a record time of 11 months, construction and erection of machinery was completed. The first car rolled off the assembly line on May 26, 1994.The company is listed on Karachi, Lahore and Islamabad Stock Exchanges.

On July 14, 1994, car bookings started at six dealerships in Karachi, Lahore, and Islamabad. Since then the Dealerships Network has expanded and now the company has sixteen 3S (Sales, Service and Spare Parts) and thirty 2S (Service and Spare Parts) Pitstops network in all major cities of Pakistan. Since the commencement of production in 1994, the company has produced and sold more than 150,000 cars till Oct, 2008.

All dealerships are constructed in accordance with the standards defined by Honda World over.

Percentage of local parts conforms to the government's policy. Local vendors are continuously patronized to develop parts locally. The quality of local parts is thoroughly checked to meet stringent international standards.

We always strive to give outstanding service to our valued customers. In addition to providing regular service to customers, the company also regularly conducts Service Campaigns, to facilitate customer's need for service. This has given our customers absolute confidence in our cars, clearly evident from the ever increasing sale volumes.

It is the constant endeavor of Honda Atlas Cars (Pakistan) Limited to achieve No .1 Customer satisfaction. Honda Atlas Cars (Pakistan) Limited is committed to meet customer expectations, and to provide good value for money . Currently we are offering 8 different models of Honda CIVIC and CITY cars in wide range of colors with unique technological and other features.

Vision

Focusing on “satisfaction” (customers’, associates’ and shareholders’) with challenging spirit and flexibility, we are dedicated to supplying latest generation cars with advanced technology, greater fuel efficiency and competitive prices, along with friendly and efficient after sales back up, maintaining “quality” as core of all activities

The Board of Directors

Mr. Yusuf H. Shirazi - Chairman

Mr. Atsushi Yamazaki - President/CEO

Mr. Aamir H. Shirazi

Mr. Fumihiko Ike

Mr. Jawaid Iqbal Ahmed

Mr. Masahiro Takedagawa

Mr. Yukimitsu Miyagi

Lahore Office

293-Y, Commercial Area, DHA

Ph: (042) 5692644-45 Fax: (042) 5892437

Karachi Office

C-160, KDA Scheme No.1

Street H, Karsaz Road

Ph: (021) 4854973 Fax: (021) 4854974

 

Multan Office

Honda Breeze

63 – Abdali Road, Multan

Ph: 061-4588871

Fax: 0614588874

Market Share of Honda

Honda Atlas Cars Pakistan had a market share of 11% in 2009, following Pak Suzuki (market share: 52%) and Indus Motors (market share: 35%), the two leading car manufacturers in Pakistan. The market share of Pak Suzuki declined to 52% in 2009 from 62% in 2008. Dewan Motor's market share also decreased from 5% in 2008 to just 2% in 2009. However, Indus Motors and Honda Atlas gained in terms of market share. The market share of Indus Motors improved from 26% in 08 to 35% in 09.
Honda Atlas' market share surged from 7% in FY08 to 11% in FY10. Sales of both Pak Suzuki and Dewan Motors plunged considerably by 56% and 75% respectively. Indus Motors and Honda Atlas also registered lower sales by 29% and 28% respectively. Although Honda Atlas ranks third in case of car sales, it led the motorcycle segment with a market share of around 72.5% in FY10.

Stock Exchange

In Karachi Stock Exchange, Honda Atlas Cars is registered as…

Honda Atlas Cars (Pakistan) Ltd (HCAR)

About

Honda Atlas Cars (Pakistan) Ltd. is engaged in the assembling and progressive manufacturing and sale of Honda vehicles and spare parts. Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor Company Limited Japan, and the Atlas Group of Companies, Pakistan. M/s Honda Motor Company Limited is the holding company with 51% shares. The Company has introduced four models of Honda Civic and four models of Honda City, the highest among the other car makers in Pakistan.

FINANCIALS

	HCAR	Industry	Sector
P/E (TTM):	--	4.47	10.45
EPS (TTM):	54.30	--	--
ROI:	-17.44	0.51	1.06
ROE:	-22.56	1.21	1.75

Organization Chart

Financial Analysis

In financial ratios are considered the best indicator of position of a company. It ratio analysis is given as followed

Liquidity Ratios

Ratios	2007	2008	2009
Current Ratio	0.94	0.80	0.70
Quick Ratio	0.23	0.24	0.15

Its current ratio has been less than one for three years which shows that its current liabilities are greater than its current assets. Although its current assets increased by 61% in Financial Year 2009 but its current liabilities also increased by 82% so current ratio further decreased.

Apparently it looks that its liquidity position is very weak but actually it is not true because of the nature of its current liabilities. In its current liabilities one main portion is its trade payables, as it purchases its raw material from parent company Honda Japan so it can get a lot of relaxation in making payment to its parent company.

In its current liabilities one portion consist of advances from dealers which are not likely to demand all of their money in near future. So if we consider these factors then its liquidity position looks better even with low quick and current ratios.

It has to pay its payables in Japanese Yens so change in currency rate can affect the figure of payables so a risk is also involved.

Its quick ratio is very low as most of the current assets consist of inventory, other assets like receivables and cash are very low. Its receivables are very low or are nil as it makes sales on cash even gets money in advance which further increases its current liabilities.

Its cash position is very low as it did its expansion in plant capasity in 2007 and a lot cash was used there.

Asset Management Ratios

	2007	2008	2009
Inventory Turnover (Days)	58.50	43.33	78.73
Total Asset turnover	2.05	2.16	1.42

I have not calculated its receivable turnover as I have explained that it either does not has its receivables or they are very low.

Its inventory turnover increased showing that it took longer for the company to sell its stock in trade. It has increased from 43 to 79. Its basic reason is decrease in over all demand of cars due to bad financing condition. The company has to make big batches of each model to reduce set up cost but this over production takes time in selling as demand has decreased due to due to high interest rates.

The total asset turnover ratio has decreased showing that the assets are not being used efficiently as it has been discussed that capacity is much higher than production and sales.

Debt Management Ratios

	2007	2008	2009
Debt/Equity (Times)	2.40	1.11	2.52
Times Interest Earned (Times)	-0.58	1.27	-1.79

The total liabilities of the company have almost doubled during 2009. Its major reason is that it long term debt has doubled.

Negative TIE ratio is due to loss in 2007 and 2009. Long term debt is paid through profit which Honda is not generating but still this loss does not show very weak position as major expense is depreciation expense which is converting profit into loss and we know that the company does not has to pay this expense. It is a non cash expense. If we exclude this expense then company can show some better debt position. But overall position is not so good as demand of cars has decreased in last three years.

Profitability Ratios

	2007	2008	2009
Net Profit Margin	-1.55	0.51	-2.84
Return on Asset	-3.19	1.10	-4.04
Return on Equity	-10.84	2.32	-14.21
Earning Per Share	-3.71	0.55	-2.81

As the company is in loss therefore all profitability ratios are negative. Actually in this type of business big fixed cost is involved which can only be recovered if production is done at large scale but due to low demand it is very difficult to recover and which converts the contribution generated from sale into loss.

Although it looks that its shareholders are in loss but that is not the reality its parent company sells parts to it and earns profit on this sale so even if Honda Atlas is in loss still parent company is earning profit.

ROA went down because of the dual reason of decreasing returns and increase in asset size. The asset base of the company widened during 2007 due to capacity expansion and introduction of new models because there was increasing trend of demand when this expansion was started.

The company was able to keep its cost of sales in a bit low during 2009. The cost of sales in 2009 due to restricted production of cars and cost minimization. However, lower costs could not restrict the impact of lower sales revenue on the profitability of the company.

Common Size Analysis of Balance Sheet

	Regular (in Thousands)		Common Size (%)
ASSETS	Year 2008	Year 2009	Year 2010		Year 2008	Year 2009	Year 2010
property, plant and equipment	4,082,955	3,864,527	5,190,535		49%	57%	52%
intangible asses	65,903	64,636	195,830		1%	1%	2%
capital work-in-progress	191,842	80,746	19,226		2%	1%	0%
long term loans, advance and deposits	32,196	33,141	35,545		0%	0%	0%
deferred taxation	251,008	338,165	571,214		3%	5%	6%
NON-CURRENT ASSETS	4,623,904	4,381,215	6,012,350		56%	64%	60%
stores and spares	50,316	83,101	101,942		1%	1%	1%
stock-in-trade	2,704,946	1,612,696	2,954,091		33%	24%	30%
trade and other receivables	706,092	507,852	853,218		9%	7%	9%
cash and bank balances	219,859	231,880	20,487		3%	3%	0%
CURRENT ASSETS	3,681,213	2,435,529	3,929,738		44%	36%	40%
TOTAL ASSETS	8,305,117	6,816,744	9,942,088		100%	100%	100%

	Regular (in Thousands)		Common Size (%)
equity and liabilities	Year 2008	Year 2009	Year 2010		Year 2008	Year 2009	Year 2010
authorised capital	750,000	2,000,000	2,000,000		9%	29%	20%
issued, subscribed and paid up capital	714,000	1,428,000	1,428,000		9%	21%	14%
reserves	1,991,000	1,727,000	1,801,500		24%	25%	18%
unappropriated profit	-264,332	74,678	-401,655		-3%	1%	-4%
SHARE CAPITAL AND RESERVES	2,440,668	3,229,678	2,827,845		29%	47%	28%
NON-CURRENT LIABILITIES	1,958,334	500,000	1,500,000		24%	7%	15%
current portion of long term finances	583,333				7%	0%	0%
short term borrowings			2,151,601		0%	0%	22%
mark up accrued on loans and other payables	39,627	32,029	75,048		0%	0%	1%
trade and other payables	3,283,155	3,055,037	3,387,594		40%	45%	34%
CURRENT LIABILITIES	3,906,115	3,087,066	5,614,243		47%	45%	56%
TOTAL EQUITY AND LIABILITIES	8,305,117	6,816,744	9,942,088		100%	100%	100%

Index Analysis of Balance Sheet

	Regular (in Thousands)		Indexed (%)
ASSETS	Year 2008	Year 2009	Year 2010		Year 2008	Year 2009	Year 2010
property, plant and equipment	4,082,955	3,864,527	5,190,535		100%	95%	127%
intangible asses	65,903	64,636	195,830		100%	98%	297%
capital work-in-progress	191,842	80,746	19,226		100%	42%	10%
long term loans, advance and deposits	32,196	33,141	35,545		100%	103%	110%
deferred taxation	251,008	338,165	571,214		100%	135%	228%
NON-CURRENT ASSETS	4,623,904	4,381,215	6,012,350		100%	95%	130%
stores and spares	50,316	83,101	101,942		100%	165%	203%
stock-in-trade	2,704,946	1,612,696	2,954,091		100%	60%	109%
trade and other receivables	706,092	507,852	853,218		100%	72%	121%
cash and bank balances	219,859	231,880	20,487		100%	105%	9%
CURRENT ASSETS	3,681,213	2,435,529	3,929,738		100%	66%	107%
TOTAL ASSETS	8,305,117	6,816,744	9,942,088		100%	82%	120%

	Regular (in Thousands)		Indexed (%)
equity and liabilities	Year 2008	Year 2009	Year 2010		Year 2008	Year 2009	Year 2010
authorised capital	750,000	2,000,000	2,000,000		100%	267%	267%
issued, subscribed and paid up capital	714,000	1,428,000	1,428,000		100%	200%	200%
reserves	1,991,000	1,727,000	1,801,500		100%	87%	90%
unappropriated profit	-264,332	74,678	-401,655		100%	-28%	152%
SHARE CAPITAL AND RESERVES	2,440,668	3,229,678	2,827,845		100%	132%	116%
NON-CURRENT LIABILITIES	1,958,334	500,000	1,500,000		100%	26%	77%
current portion of long term finances	583,333				100%	0%	0%
short term borrowings			2,151,601		100%
mark up accrued on loans and other payables	39,627	32,029	75,048		100%	81%	189%
trade and other payables	3,283,155	3,055,037	3,387,594		100%	93%	103%
CURRENT LIABILITIES	3,906,115	3,087,066	5,614,243		100%	79%	144%
TOTAL EQUITY AND LIABILITIES	8,305,117	6,816,744	9,942,088		100%	82%	120%

Common Size Analysis of Income Statement

	Regular (in Thousands)		Common Size (%)
Income Statement	Year 2008	Year 2009	Year 2010		Year 2008	Year 2009	Year 2010
Sales	17,055,115	14,715,495	14,149,646		100%	100%	100%
Cost of Sales	16,955,181	14,088,001	13,973,144		99%	96%	99%
Gross Profit	99,934	627,494	176,502		1%	4%	1%
Less: Distribution and Marketing Costs	214,889	209,677	190,088		1%	1%	1%
Less: Administrative Expenses	147,274	139,163	139,749		1%	1%	1%
Add: Other Operating Income	150,585	23,589	64,844		1%	0%	0%
Less: Other Operating Expenses	64,514	4,975	311,025		0%	0%	2%
Profit/Loss from Operations	176,158	297,268	399,516		1%	2%	3%
Less: Finance Cost	305,491	233,651	222,769		2%	2%	2%
Profit/Loss before taxtation	481,649	63,617	622,285		3%	0%	4%
Taxation	217,109	11,393	220,452		1%	0%	2%
Profit/Loss after taxation	264,540	75,010	401,833		2%	1%	3%
Earnings per Share (rupees)	2.08	0.55	2.81

Index Analysis of Income Statement

	Regular (in Thousands)		Common Size (%)
Income Statement	Year 2008	Year 2009	Year 2010		Year 2008	Year 2009	Year 2010
Sales	17,055,115	14,715,495	14,149,646		100%	86%	83%
Cost of Sales	16,955,181	14,088,001	13,973,144		100%	83%	82%
Gross Profit	99,934	627,494	176,502		100%	628%	177%
Less: Distribution and Marketing Costs	214,889	209,677	190,088		100%	98%	88%
Less: Administrative Expenses	147,274	139,163	139,749		100%	94%	95%
Add: Other Operating Income	150,585	23,589	64,844		100%	16%	43%
Less: Other Operating Expenses	64,514	4,975	311,025		100%	8%	482%
Profit/Loss from Operations	176,158	297,268	399,516		100%	169%	227%
Less: Finance Cost	305,491	233,651	222,769		100%	76%	73%
Profit/Loss before taxtation	481,649	63,617	622,285		100%	13%	129%
Taxation	217,109	11,393	220,452		100%	5%	102%
Profit/Loss after taxation	264,540	75,010	401,833		100%	28%	152%
Earnings per Share (rupees)	2.08	0.55	2.81

Current Scenario

The performance of the car assemblers remained lackluster during FY09 owing to the economic meltdown in the country. In the wake of rising steel prices, appreciation of yen against rupee and imposition of 5% FED in the budget of FY09, the car assemblers passed on the increase in cost to the consumers. The increase in car prices weakened the demand for cars.

Also, high interest rates and reduction in car financing facility offered by banks further depressed the demand for cars. Thus, the industry car sales went down by 50% from 147,441 units sold in FY08 to 74,180 units in FY09. Sales went down mainly in the 800cc and 1000cc categories, which contribute 60% to the total auto sales. The car sales of Honda Atlas slumped by 28% from 15,487 units sold in FY08 to 11,144 units in FY09. By December 2008, the sale of Honda City had dropped by 83% due to tough competition from Suzuki Liana and Toyota Corolla.

However the launch of new Honda City improved its sales and enabled it to improve its market share. The company also launched new model of Honda Accord and CRV in 2400cc categories during FY09. HCAR rationalized its car production inline with the decline in sales volume. The company produced 4,985 units of Honda Civic during Jul-Jun FY09 as against 5,813 units during Jul-Jun FY08. Similarly the production of Honda City reduced to 6,755 units in Jul-Jun FY09 as compared to 8,220 produced in the corresponding period of previous fiscal year.

SWOT Analysis

STRENGTHS

· Quality and customer satisfaction

· High R&D like Hybrid Technology

· Innovation

· Market share leadership

· Strong brand equity

· Unique products

WEAKNESSES

· High Price (latest technology being used in Honda products it is difficult to keep the prices low.)

· Reputation for being underpowered.

OPPORTUNITIES

· Progressing low emission vehicles and alternative power sources.

· Mid segment economical small Cars.

THREATS

· Too many competitors in automotive industry.

· Lower cost competitors

· Economic slowdown

· Expanding market size of compact cars ( currently it is around 76% )

· Regaining the lead of low emissions is a risky proposition as other companies are coming out with new and cost effective ideas of producing low emission vehicles.

· External changes (government, politics, taxes, Steel Prices etc)

PEST Analysis

Political

· Government imposes limit on the number of parts to be imported.

· Legislations require locally made parts to be international standards compliant.

· Pressure to produce cars with cleaner emissions.

Economical

· Rise in inflation has forced Honda and other car manufacturers to increase their prices.

· As parts are imported, the effect of Exchange rate and the weakness of Pakistani rupee make cars more expensive.

· Cost of Petrol has led Honda to accommodate for the market by introducing more economical cars.

Social

· Increased desirability of personalized/customized Cars in Pakistan. Honda is a leading manufacturer of cars so it should give attention to this phenomenon too.

· More People have desire for city cars. This has meant Honda has to create smaller and economic cars. As we interviewed Honda’s Sales Manager, he felt the need to provide 800CC cars.

· Tsunami in Japan is going to affect the prices of cars and their parts.

Technological

· Honda has introduced Electronically Controlled Power Steering, Accelerator with Sensors, G.P.S, etc.

· Honda needs to work on gas-electric hybrid and Hydrogen-powered fuel cell vehicles which will reshape the future.

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