Atlas Honda ends Q3CY22 with Rs777m gain

LAHORE: Atlas Honda Limited (ATLH), the sister company of Honda Cars Pakistan Limited, released their results for Q3CY2022 on Friday. The company closed the quarter with a final profit of Rs 777 million, down 48 percent on a quarterly basis (QoQ) from Q2CY22. This translates into a half-year profit of Rs 2.27 billion, down 8 percent year-on-year from Rs 2.487 billion in the same period last year.

Atlas Honda’s total sales revenue fell 45 percent from Rs 37.68 billion in Q2CY22 to Rs 29.5 billion in Q3CY22. The decline in sales is likely due to the 27 percent contraction it saw in its sales during the same period when sales fell from 341,419 units to 250,132 units. The company’s gross profit margin (GPM) also fell from 7 percent to 5 percent. This is most likely due to the increase in cost of goods sold from 93 percent of sales revenue to 95 percent of sales in the same period.

The effects of the interest rate hike by the State Bank of Pakistan (SBP) are also reflected in the changes in Atlas Honda’s borrowing costs, with a 62 percent qoq. As Atlas Honda invested in increasing their capacity, it saw a 4 percent increase from Rs 486 million in its tangible assets and an 11 percent increase from Rs 5.3 million in intangible assets from Q2CY2022 to Q3CY2022.

Similarly, Atlas Honda’s other revenues saw a 40 percent increase quarter on quarter. Short-term investments fell 29 percent in the same period, while cash and bank balances increased 63 percent or Rs 7.9 billion. The increase in other income is therefore probably due to the fact that Honda benefits from the interest on these deposits.

Atlas Honda’s effective tax rate is also 45 percent compared to previous quarters of 37 percent. The company cites the provision of the super tax for the current and previous year as the reason for this.

The coming quarter looks equally, if not more difficult, for Atlas Honda due to rising inflation. The lion’s share of Atlas Honda’s sales are attributable to their CD-70 and CG-125. Both products target the more affordable markets, so September’s 23.2 percent inflation is likely to have a greater multiplier effect on Honda Atlas than its other Japanese counterparts targeting the more premium market segment. This destruction in demand is likely to worsen if the Pakistani rupee falls further, as Honda Atlas would be forced to revise its prices upwards, as it has already done on seven separate occasions this calendar year.

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