CAR reports NPAT of PKR742mn (EPS: PKR5.2) for 2QMY26

Honda Atlas Cars Ltd. (HCAR) reported NPAT of PKR742mn (EPS: PKR5.2) for 2QMY26, up 2.9x YoY but down 10% QoQ. This takes 1HMY26 NPAT to PKR1.6bn, a 3.4x YoY increase. The result came in below our expected EPS of PKR8.25, primarily due to lower gross margins, despite the launch of the HR-V HEV. This suggests the HR-V HEV is priced at narrower margins than competitors that earn gross margins over 25%, according to a report published by IMS Research.

Key highlights for 2QMY26:

§ Net sales stood at PKR25.4bn in 2QMY26, up 53% YoY but broadly flat QoQ. The YoY growth was supported by higher volumes across all segments (+46% YoY), particularly Honda City and the HR-V HEV. Honda City accounted for around 60% of total volumes, down from 74% in the previous quarter, reflecting a pickup in HR-V sales.

§ Gross margins came in at 7.6%, down 1ppt QoQ and below expectations. We had expected stronger margins given the shift in sales mix from predominantly Honda City to a healthier contribution from HR-V/BR-V, with the HR-V HEV also benefiting from lower custom duty under the current Auto Policy. However, the HR-V appears to be priced competitively, which limits margins relative to competitors.

§ Other income increased 5.8x YoY to PKR495mn, despite lower interest rates and a decline in cash equivalents and investments. We wait for the detailed accounts for further clarity on this.

§ Finance costs increased 63% YoY to PKR315mn, despite lower interest rates, mainly due to the elimination of short-term borrowings.

§ The effective tax rate stood at 33.9%, compared to 25% in SPLY.

HCAR delivered a weak 2QMY26 result, coming in below our expectations as margins remained softer than expected, despite the HR-V HEV launch and the recent price increase following the NEV levy, which the company did not absorb, in our view. An improving macro backdrop supported volume growth. However, the commercial import of five-year-old used cars and lower tariffs pose risks to the sustainability of this growth, particularly as Honda remains highly dependent on Honda City, which is more exposed to these policy changes. We maintain our Neutral stance on HCAR with a target price of PKR313/sh.