Honda Atlas Cars (Pakistan) Limited (HCAR) posted NPAT of PKR 675mn (EPS: PKR 4.73) for 2QMY24, marking a 4.7x increase QoQ, primarily driven by substantial gross margin expansion. The earnings aligned closely with our projected NPAT of PKR 661mn (EPS: PKR 4.62). The cumulative 6MMY24 NPAT stands at PKR 820mn (EPS: PKR 5.74), reflecting a 3.0x increase YoY.

2QMY24 key highlights:

§  The company reported a net revenue of PKR 13.9bn, reflecting a 29% decline YoY but a significant 3.7x increase QoQ. The substantial quarterly surge in revenue is attributed to increased unit sales volumes. Our projected revenue aligns closely with the reported results. 

§  In 2Q, the gross margin turned positive, reaching 10.9%, surpassing our expected gross margins of 6.9%. This boost in margins is likely attributed to improved absorption of fixed costs. Unit sales saw a 4.2x QoQ improvement to 2,510 units during the quarter.

§  Other income totaled PKR 897mn, marking a 1% decrease QoQ but a 14% increase YoY—slightly surpassing our estimate of PKR 878mn. The company continues to benefit from higher interest rates by investing excess customer advance liquidity in government T-bills at prevailing lucrative rates.

§  Among other line items: i) elevated interest rates resulted in the company incurring financial charges of PKR120mn, a 191% increase YoY, and ii) the effective tax rate for the quarter stood at 55.1%.

HCAR has shown promising results driven by expanded gross margins and increased other income, contributing to improved earnings. However, sustaining these margins might pose a challenge due to recent weak sales trends (October sales declined 66% MoM), potentially impacting gross profitability and introducing volatility in earnings. The company’s recently announced price cut of 3% may further strain gross margins. Our stance on the stock remains Neutral.

Courtesy –  Intermarket Securities Limited.