Indus Motor Company (IMC), the firm that assembles and sells Toyota cars and other vehicles in Pakistan, reported that yearly profits fell 63% in fiscal year 2020 and COVID-19 is not the only reason.
Car sales in the country were already dropping when the coronavirus emerged and sent the country, just like the rest of the world, into lockdown.
Interest rates were high at 13.25% before COVID-19, which made car financing expensive for buyers, and research analysts say it has also been one of the reasons for dropping car sales in the country.
But the biggest reason was significant rupee depreciation, which forced car companies to increase car prices. Increasing car prices a amid struggling economy reduced car buyers significantly.
“Reduced economic activity and high-interest rates hampered auto sales during the year as total units sold decreased by 57% to 28,378 units compared to 65,399 units in financial year 2019,” a BMA Research note said.
“Among all variants, the Toyota Corolla was the most affected as the number of units sold declined by 22,140 units compared to 56,720 units in 2019, translating into a decline of 61%,” it noted.
IMC revenues in financial year 2020 declined to Rs86 billion. The company’s revenue stood at Rs158 billion in 2019. It showed a 45% decline in annual sales.
Low sales during the year translated into a 63% decline in profits for the company. The company earned Rs13.71 billion or Rs174.49 per share in profits in 2019, which reduced to Rs5.08 billion or Rs64.66 per share in 2020.
In the fourth quarter (April, May and June 2020), the company reported Rs98 million in profits as compared to Rs3.458 billion for the same period last year, showing a decrease of 97% as the auto industry failed to record sales in April and May only to recover in June as the country started to return to normal after the COVID-19 lockdown.
The company reported gross loss (from operations) but other income kept them in the green for the quarter.
The company result was lower than industry expectations. According to JS Global Capital, the net profit during the quarter is Rs1.25 per share while it was expected that the company would report a profit of Rs6 per share.
“The result under-performed our expectations where the main deviation emanated from lower than estimated gross margins for the quarter,” the BMA Research report read.
The company has announced a cash dividend of Rs7 per share, taking the total payout during the financial year 2020 to Rs30 per share.
“We have a neutral stance on the stock as we believe that the improvement in underlying fundamentals has already been incorporated in the stock price,” BMA Research said.
The policy rate or interest rate has already been reduced to 7%. Sales through car financing depend on the interest rate.
IMC stock was trading at Rs1,394.50 at the Pakistan Stock Exchange after an increase of Rs22 during the day.