Despite a 51 percent drop in sales of Honda (PSX: HCAR)'s in the first half of the company's ongoing financial year, the company's revenues only dropped 41 percent and earnings 64 percent. Last quarter, a comparison showed that Pakistan Suzuki was already incurring a loss while Honda made a profit. In the second quarter as well, Honda has managed to keep a positive balance sheet against all odds. The most positive development is being an improvement in its margins.

Due to an increase in FED and the impact of rupee devaluation, automakers including Honda had raised prices multiple times over the past one and a half years. Since last June, the company has raised prices six times. Expectedly, that put a solid dent on demand, but it did raise gross margins for the auto giant. But demand has also suffered due to other reasons such as an increase in cost of financing (due to interest rate hikes), and overall slowdown in the economy. Recall that the company kept its plant closed for 10 days last month citing reduced demand for vehicles.


Half year ending Sep-19Honda Atlas Cars (HCAR)
 (Rs mn) 20192018chg
 Sales      29,526.1      49,671.6-41%
 Cost of Sales      29,960.8      45,879.8-35%
 Gross Profit        2,565.3        3,791.8-32%
 Distribution cost           357.1           356.30%
 Administrative cost           376.1           381.8-2%
 Finance cost           254.4                6.43896%
 Other operating expenses           675.1           610.711%
 Other operating income           200.1           809.4-75%
 Profit before taxation        1,102.7        3,245.4-66%
 Tax           351.3        1,165.2-70%
 Profit after taxation           751.4        2,080.8-64%
 Earnings per share (Rs)5.2614.57-64%
 Sales (passanger cars, LCVs, SUVs)        12,800        25,935-51%
 GP Margin9%8%14%
 NP Margin3%4%-39%
 Finance costs as % of revenues0.86%0.01%
 Indirect expenses as % of revenues5%3%76%
 Source: PSX, PAMA 

On the expensive side, the company could not help with inflationary pressures that led to indirect expenses grow from 3 percent of revenues to 5 percent whereas much higher cost of borrowing also raised finance costs significantly, though they remain still less than 1 percent of revenues. Comparatively, the company paid a lower effective tax this year against the corresponding period last year, but which managed to shield the decline in profits only so much.

However, despite the poor demand and expenditure scenario, Honda is keeping firmly on ground, even if the current scenario does not allow it to turn a massive gain. Given the circumstances, this is the best the company could manage, and managing it is.