Honda Atlas Cars (KSE: HCAR) announced its financial result for the quarter ended June 30, 2015; around mid-day on Tuesday. Instantly, the company’s stock hit its upper limit. The reason: a hefty surprise on account of earnings.
It has been months since HCAR impressed in terms of car sales. Its share among the Big-3 of auto assembly in Pakistan has shrunk by a fourth in about a year. Demand for the flagship vehicle, Honda Civic, is waning.
In fact, if it wasnt for sales of Honda City, HCARs share would be trimmed further. This performance is reflected in the top line, which grew a measly one percent over the same period, of the previous year.
However it was the bottom line which sent investors chasing after the company’s shares. The EPS for the recently concluded quarter is head and shoulders above that reported in the same period of the previous year. Just about every cost that the company faces is down; at least as a percentage of the top line, if not in absolute terms as well.
HCAR had its bread buttered on both sides on account of currency exchange rates. Weak Japanese Yen coupled with strong Pak Rupee to take a slice out of cost of production. Hence, the chunky gross margin in the quarter ended June 30, 2015. Analysts, such as those at Shajar Capital, had expected more tax expenditure than those reported.
Clearly, the dismal car sales are not a bother to investors. And that debacle may not remain as severe as it has been in recent months. HCAR has plans to launch a new model of the Honda Civic soon. The company has announced that the new model will be priced at the same level as the existing model. However, it has not revealed the launch date.
Surely, a new model for the flagship brand could revive the top line. However, given the historical trend; expect the new model to only be available near the start of the new calendar year. That means at least another three months of unimpressive car sales by HCAR. Then again, if the bottom line is so rosy; who would mind waiting a while longer for the new model?
Source: BR research