Daily Times

KARACHI: Pakistan Suzuki Motor Company (PSMC), the Pakistan’s largest auto assembler, saw a massive 41% yearly decline in its profitability during the first half of current year, mainly due to completion of ‘Apna Rozgar Cab Scheme’ and Japanese Yen’s appreciation.

The PSMC reported earnings of Rs 1.43 billion with earnings per share (EPS) Rs 17.4 in first six months of 2016 compared to Rs 2.42 billion with EPS of Rs 29.4 in corresponding period of 2015, representing a decline of 41% Year on Year (YoY).

An analyst at Foundation Securities believes that upcoming quarters will further depress investors’ sentiments as normalisation of margins is expected to be continued with unfavorable movement of Yen. The BMA Research analyst attributed this decline mainly to 250 basis points system (bps) YoY decline in gross margins amid Japanese Yen appreciation, 8.4ppsYoY higher effective tax rate owing to super tax and 45%YoY increase in administration cost.

On sequential basis, earnings clocked in at Rs 488 million with EPS of Rs 5.9 in second quarter of 2016 compared to Rs 948 million with EPS of Rs 11.5 in the preceding quarter, down 49% Quarter on Quarter (QoQ) basis. The decline in earnings comes on the back of 170bps QoQ contraction in gross margins due to 6.2% QoQ appreciation in Japanese Yen 10% QoQ decline in volumes and a significant surge in effective tax rate to 55% in second quarter of 2016 compared to 32% in first quarter of 2016 following recognition of super tax. “We attribute the decline to 11% reduction in sales volumes, contributed majorly by Bolan and Ravi that were down by 38%YoY and 34% YoY, respectively,” said the analyst at Shajar Research. The PSMC faces attrition in volumes due to the implication of the new auto development policy 2016-21 with local auto original equipment manufacturers (OEMs) passing on some benefit of the reduction in import duties, he added.