PSMC declares PAT of Rs 95mn for 3rd 2018

Margin compression and higher taxation resulted in lower earnings

KARACHI: Pak Suzuki Motors Company (PSMC) Tuesday reported profit after tax of Rs 95 million in its third quarter 2018 and its earnings per share went down to Rs 1.2 year on year (YoY).

“Earnings of the company are below expectations as margin compressions as well as taxation were higher than anticipated,” the analyst said. “Effective tax rate clocked in at 79 per cent due to applicability of turnover tax as opposed to tax on profits,” he added.

Despite 10 per cent YoY decline in volumes during the quarter, net sales of the company rose by 3 per cent YoY due to four price hikes in 2018.

Company’s cost of sales rose by 7 per cent YoY leading to significant gross margin attrition. Gross profit fell by 34 per cent YoY, dragging gross margin down by 3.5ppts YoY to 6.3 per cent.

Drop in margins is a result of Pak rupee depreciation (rupee down by 18 per cent from Dec 2017 to Sept 2018) as well as higher raw material costs (average steel prices up by 5 per cent YoY).

Administrative expenses also rose by 67 per cent. The sources said the rapid increase in administrative expenses is due to salary and wages increments.

Moreover, other income also declined by 59 per cent YoY as interest income from investments declined. The decline is a result of reduction in advances from customers that were used to earn interest income, the analyst claimed.

For the nine-month 2018, the company’s earnings fell by 55 per cent YoY due to 3.3ppts margin depletion, 48 per cent increase in administrative expenses as well as an effective tax rate of 44 per cent compared to 31 per cent in the same period last year.

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