Motorcycle: ATLAS HONDA PAKISTAN LIMITED - Analysis of Financial Statements Financial Year 2007 - 1H Financial Year 2011
OVERVIEW (January 05, 2011) : Atlas Honda Limited is a joint venture between the Atlas Group and Honda Motor Co, Japan. The company was created by the merger of Panjdarya Limited and Atlas Autos Ltd in 1988.
Both these motorcycle manufacturing concerns were established by the Atlas Group. In addition, a third concern, Atlas Epak Ltd was taken over by the Government of Bangladesh. Atlas Honda Limited manufactures and markets Honda motorcycles in collaboration with Honda Motor Company.
The company also manufactures various hi-tech components in-house in collaboration with leading parts manufacturers like Showa Atsumitech, Nippon Denso and Toyo Denso. Honda motorcycles are by far the largest selling motorcycles in the country with an unmatched reputation for high quality, reliability and after-sales-service.
Atlas has undertaken to develop local manufacturing capabilities to the highest, economically feasible level. While a major role in localization has been assigned to vendor industries, Atlas has the country's largest in-house manufacturing capability at its Karachi and Sheikhupura plants. To support the production facilities, the company has established an R&D wing and tool making facilities through CDA & CAM which are growing rapidly in size and function as the company expands. Atlas has managed to execute 14 Joint Venture/Technical Assistance Agreements between local vendors and foreign manufacturers for transfer of technology. Besides, Atlas has directly executed 5 Joint Venture/Technical Assistance Agreements other than Honda.
In addition, the company also launched a new model of CD 100 Euro-2 in the year 2009, launched a new model of CG 125 Deluxe Euro-2 and acquired ISO 14001-2004 Environment Certificate.
MOTORCYCLE INDUSTRY Over all, the industry sold 1.2 million bikes in the financial year ended 2010 as opposed to 850,000 units the year before. After witnessing a 41% growth in motorcycles sales growth since last year, the industry is now expecting another 15% growth in the industry for FY11. Most of it attributed to a hike in petrol and prices of 4 wheelers which made motorcycles more attractive for the common man. In addition, water shortages and escalating steel prices are putting the present situation very challenging to operate in.
Especially those players who are indulging in sales tax evasion, smuggling and under invoicing are making it very hard for the formal sector to achieve its target and hit economies of scale which are critical for exports. The motorcycle sector however, experienced an overall growth in sales of 44 percent over the last year.
PRODUCTIONThe financial year 2010 witnessed an unprecedented increase in material process internationally coupled with an unfavorable exchange rate and jump in the commodity process locally. Atlas Honda, however, was able to absorb most of the cost impact by focusing on improved efficiency and process optimisation. Atlas Honda sold 483,028 units this year as against 359,525 units last year.
RECENT RESULTS (1H11)Sales increased by 34% to be Rs 15.46 billion in 1H10 due to volume growth and a better sales mix. Resultantly, the gross profit margin has been maintained to previous period's levels. Rising inflation contributed to rise in all costs, which along with rupee depreciation would have kept pressure on the profits. However, a higher other income of Rs 156 million as compared to Rs 111 million helped yield a healthy PAT of Rs 431 million as compared to Rs 308 million, with an EPS of Rs 6.9 as compared to Rs 4.93.
The cost of goods sold has shown a stark increase of 84% in FY10 from Rs 12.7 billion to Rs 23.5 billion. In tandem, total revenue also grew 85% from Rs 13.7 billion in FY09 to Rs 25.5 billion in FY10, the highest turnover the company has witnessed resulting to slight increase...
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