KARACHI, Aug 22: The car assembler that is now placing front page ads in newspapers may have intended to keep a thick layer on the mystery shrouding the “approaching unidentifiable car”. But many people at the market have peered through the smog to see that the car is the new “City” model from Honda Atlas Cars (Pakistan) Limited. Market sources believe that the company had planned to launch the new model on August 14, though the event had to be delayed until possibly the start of the next week.

There has been some discernible jump in investors’ interest in the share of Honda Atlas Cars, as the price of the stock galvanised by Rs23 or 30 per cent to Rs99.25 on Friday, from Rs76.25 three weeks ago at the start of the current month. The share has outperformed the KSE index, which rose by 14 per cent in August.

As regards the proposed new launch, Khalid Iqbal Siddiqui, auto sector analyst at brokerage InvestCap affirms that according to information gleaned by him from market sources, order books are full for up to six to eight months ahead of the launch and the immediate delivery premium ranges between Rs100,000 to Rs150,000. Dealers place the possible price of the car in between Rs800,000 to Rs850,000, which means it could put some competitive pressure on the product of the second of the three major automobile manufacturers in the country — The Indus Motor Company’s Toyota Corolla.

Honda Atlas Car had recently announced financial figures for the first quarter ended June 30, 2003, posting an after tax profit at Rs142.7 million. This represented 27 per cent drop in taxed profit amounting to Rs196.1 million in the same period of the previous year. Top line growth in sales also showed slight slip of 1.5 per cent to Rs2,011 million, from Rs2,040 million. Company chairman Yusuf Shirazi could not be reached on Friday to enquire whether he would lift the veil from over the ‘unidentifiable approaching car’ or let it remain there until it’s launch. Also he could have shed some light on the reasons for the drop in both the top and bottomline growth during Q1.

Cost of sales was seen to have risen by 1.4 per cent to Rs1,754 million, from Rs1,740 million in the same time last year and the gross profit declined 17.7 per cent to Rs256.3 million, from Rs310.6 million. Administration and selling expenses doubled to Rs33.3 million for the quarter under review, from Rs17.9 million in the same time 2002, possibly due to heavy advertising and publicity costs on the new model.

Operating profit dipped 23.9 per cent to Rs223.1 million, from Rs292.8 million with the operating margin eroding to 12.7 per cent, from 15.2 per cent. Financial charges were minimal at Rs0.3 million, on account of ample liquidity.

One-half of the equity in the Honda Atlas Cars (Pakistan) Limited is held by the Honda Motor Company Limited of Japan, and major portion of the remaining is vested in the Atlas Group. The company is engaged in the progressive manufacture and assembly of Honda cars — Civic and City.

The company had sought listing at the KSE in October 1994. It was able to begin remunerating shareholders soon after going public and the dividend for the latest year (2003) was paid at Rs3.50. Earning per share (eps) for the first quarter works out at Rs3.40. On the annualized eps at Rs13.6, the stock is now trading on price-to-earnings (p/e) multiple of 7.3x.

Auto sector analysts are optimistic about the future of the industry. Fauzan Abdullah, analyst at KASB observes that the growth witnessed last year was expected to continue in the short to medium term, due to macro economic situation; availability of car financing options, introduction of new models and government policy. He stated that due to low interest rates, car financing rates had dropped to 9-11 per cent currently, from 16-18 per cent a year ago. “It has been conservatively estimated that over 40 per cent of all new cars sold last year were financed using these various options”, said Abdullah. The analyst thought that the recent capacity expansions announced by Indus Motor Company and Pak Suzuki Motor were likely to be followed by Honda Atlas in the near future.