In a devastating blow to Honda Atlas Cars Pakistan Limited (HACPL), one of the country’s leading car manufacturers, the company has reported a staggering decline of 90 percent in its annual net profit. This shocking revelation reflects the dire state of the auto industry and the struggling economy of Pakistan.
For the fiscal year ending on March 31, HACPL’s net profit plummeted to Rs260.141 million, a sharp decrease from the previous year’s Rs2.509 billion. As a result, Honda Atlas Cars Pakistan Limited decided not to distribute any dividends for that period, while earnings per share experienced a significant decline, standing at Rs1.82/share compared to Rs17.58/share in the previous year.
The company attributed this alarming decline to various factors. HACPL’s revenue for the year dropped to Rs95.087 billion from Rs108.047 billion the previous year, while the cost of sales remained relatively stable. However, the company faced a surge in other expenses, which rose to Rs4.929 billion from Rs984.045 million, severely impacting profit margins.
Arif Habib Ltd, a brokerage firm, pointed out lower volumetric sales and increased finance costs as major contributors to this massive profit decline. The auto industry heavily relies on imports, making it particularly vulnerable to the economic conditions in the country.
Honda was among the manufacturers that had previously announced plant closures. However, on May 16, there was a glimmer of hope as Honda Atlas Cars revealed plans to resume production activities after a prolonged hiatus. This decision was prompted by an improvement in the accessibility of trade finance facilities for the supply chain.
The Pakistani government, grappling with low foreign exchange reserves, had implemented stringent measures, including restrictions on letters of credit (LCs) for importing completely knocked down (CKD) units and raw materials used by the auto industry. These measures, coupled with the economic challenges, dealt a severe blow to the sector.
Honda stated that with their persistent efforts and the slight improvement in trade finance accessibility, they are now gearing up to gradually resume production in the coming weeks.
Since March 9, the company had suspended its production activities, leading to significant setbacks for the auto industry. Non-production days, coupled with reduced consumer affordability due to higher interest rates and vehicle prices, currency devaluation, and escalating petrol prices, have taken a toll on the industry. Regrettably, these plant shutdowns have also resulted in widespread layoffs across the sector.