Despite a visible slowdown in the economy, depleting purchasing power of the middle-class, not to mention, reducing automotive demand—in both passenger cars and two-wheelers—Atlas Honda (PSX: ATHL) saw revenues remain the same in 1H ending Sep-19 as last year during the period. That's a feat since its volumes dropped 9 percent. In the first quarter, volumes had actually grown by 11 percent (revenues up by 3 percent) so the reducing demand manifested only in the second quarter. Though the company dropped profits by 27 percent, all is not lost.

For one, Atlas Honda retains its market leadership and in fact, has grown market share—which has gone up from 62 percent during the first half last year to 68 percent this time. Even when volumes are dropping, Honda remains ahead of the curve, and this is testament to its brand reputation in the market. Revenue per unit sold rose by 10 percent as price increases kicked in. This is another reason why volumes have dropped.

Atlas Honda Limited (ATLH)
Half YearApril-September
Rs (mn)20192018Chg
 Revenue    41,303    41,1560.4%
 Cost of Sales    38,279    37,3912.4%
 Gross Profit       3,024       3,764-19.7%
 Administrative expenses          330          3184%
 Selling & Marketing expenses       1,013          9279.2%
 Other operating expenses          157          202-22.5%
 Other income          539          43523.9%
 Profit from operations       2,066       2,763-25.2%
 Finance cost         13.9         11.025.7%
 Share of profit of an associate- net of tax           2.5            11-77.1%
 Profit before tax       2,052       2,752-25.4%
 Taxation          639          811-21.2%
 Net profit for the period       1,413       1,941-27.2%
 Volumes (units)  526,154  577,980-9.0%
 Earnings per share (Rs)11.3815.65-27.3%
 GP margin7.3%9.1%-20.0%
 Operating margin5.0%6.7%-25.5%
 NP margin3.4%4.7%-27.5%
 Source: PSX/PAMA 

Generally, higher fuel and power costs and rupee value against dollar (depreciated 35% since Apr-18) added to the cost burden due to which margins slipped to 7.3 percent from 9.1 percent. However, the company runs a tight ship. It has kept a good control over its overheads as administrative, marketing and operation expenses remained 4 percent of revenues—same as last year. Despite higher interest rates, the company's finance costs are less than 0.1 percent of revenues.

Further increase in input costs may push the company to raise prices a tad more, though the competition in the sector is intense (especially in the segment of motorcycles targeting middle to low-middle income groups), as many more (and cheaper) motorcycle players are operating in the same segment. This might dissuade the company from raising prices that in turn will affect the top-line and ultimately, margins. Though Honda's growing market share may reject the notion that when incomes slide, consumers go for more affordable products since evidently, Honda's reach remains intact. Demand outlook is not rosy though and it is particularly critical for the motorcycle buying segment in rural areas and low middle income urban areas. Tough times are here, but they are not nearly as bleak as other segments within the automotive industry.