Despite higher tax expenses and super tax, PSMC announces profits of Rs 488m in April-June 2016

KARACHI: Pak Suzuki Motor Company (PSMC) Thursday announced its profits of Rs 488 million declining by 5 per cent in April-June 2016 because of higher tax expenses and super tax.

The company shows its earnings per share of Rs 5.9.

PSMC reported tax expense of Rs 600 million, which resulted in effective tax rate of 55 per cent. This was higher than expectations and includes the impact of super tax. This higher than anticipated effective tax rate resulted in lower earnings in the outgoing quarter.

PSMC’s sales fell 7 per cent year-on-year to Rs19 billion in 2nd quarter 2016. This decline was mainly due to drop in volumetric sales post culmination of Apna Rozgar Taxi Scheme of Punjab government, which ended on March 2016.

Company’s sales in the outgoing quarter were 26,011 units, a decline of 19 per cent YoY (down 11 per cent YoY to 56,192 units in first half 2016). Excluding Taxi units (Ravi and Bolan), sales were robust as they increased 23 per cent YoY to 16,911 units in 2nd quarter 2016 (17 per cent YoY to 34,864 units in first half 2016).

Gross profit fell 39 per cent YoY to Rs1.8 billion in the outgoing quarter while gross margins contracted by 5ppts to 9.4 per cent. This can be attributed to 9 per cent appreciation of Japanese Yen (JPY) against the local currency.

To point out, sudden appreciation of Yen was due to Brexit, fears of which have eased out. Moreover, Shinzo Abe’s announcement of $265 billion stimulus package for Japanese economy is expected to keep Yen appreciation in check, the analyst believed.

On QoQ basis, revenue fell 5 per cent due to 13.8 per cent decline in volumes. Gross margins contracted 1.7ppts from 11 per cent in first quarter 2016.

Adverse exchange rate movement, implementation of international safety standards, and reduction in import duty may be key risks for PSMC, the analyst said.

On the other hand, other income increased by 38% to Rs 590 million. Though, 42 per cent effective tax rate (due to 3 per cent super tax) has restricted the bottom-line to Rs 1.4bn (EPS: Rs 17.4), down 41 per cent.

Gross margins have deflated by due to 6 per cent QoQ appreciation of JPY against US dollar and 13 per cent QoQ higher CRC steel prices. Additionally, distribution cost also jumped by 17 per cent QoQ. Further, super tax lifted effective tax rate to 55 per cent as compared to 32 per cent in previous quarter. Other income, however, provided some support, which increased by 11 per cent due to large cash deposits maintained by the company.

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