Sus­tain­ing mar­ket share

The Pak Banker - - 4EDITORIAL - Nasir Ja­mal

THE de­ci­sion by At­las Honda Ltd to cut prices of its pop­u­lar, smaller en­gine mo­tor­cy­cles this March to boost its sag­ging mar­ket share ap­pears to have de­liv­ered the in­tended re­sults. The 10pc price re­duc­tion an­nounced just be­fore the ar­rival of the wheat crop pushed the sales of the fu­el­ef­fi­cient mod­els - Honda CD 70 and CD Dream - 'be­yond ex­pec­ta­tions' as re­flected by the spike in its prof­its for the first quar­ter of the year 2015-16.

Ac­cord­ing to the unau­dited in­terim profit and loss ac­count of the com­pany for the April-June quar­ter, sales grew by over 16pc to Rs13bn from Rs11.2bn in the same pe­riod a year ago. The higher sales sig­nif­i­cantly boosted the com­pany's profit-af­ter-tax by 22pc to Rs701m from Rs573m dur­ing the pe­riod un­der re­view and strength­ened its earn­ings-per-share to Rs6.78 from Rs5.55.

The com­pany has launched a $100m in­vest­ment plan to in­crease its pro­duc­tion ca­pac­ity to 1m units over the next two years. At­las Honda of­fi­cials are hope­ful that the growth trend will hold dur­ing the re­main­ing three quar­ters till March 2016, as the com­pany is also im­ple­ment­ing pro­mo­tional schemes and cus­tomer-based ac­tiv­i­ties to im­prove mar­ket sen­ti­ments. The spare parts busi­ness also reg­is­tered an im­pres­sive growth of 28.8pc in the year end­ing March. Honda At­las, es­tab­lished in 1988 as a joint ven­ture be­tween Pak­istan's At­las Group of Com­pa­nies and Ja­pan's Honda Mo­tor Co., has two pro­duc­tion plants in Karachi and Sheikhupura, with an an­nual pro­duc­tion ca­pac­ity of over 750,000 units.

The com­pany's mar­ket share peaked to more than 73pc dur­ing the mid 2000s be­fore cheaper two-wheel­ers made their way from China into Pak­istan on the back of the con­sumer bo­nanza. It was a time when the sales of two-wheel­ers grew ex­po­nen­tially to 1m units.

Honda At­las, which has seen its share plum­met to less than 50pc over the years in a mar­ket of 1.5-1.6m units, in­vested around $50-60m in plant ex­pan­sion and mod­erni­sa­tion in re­cent years and launched new mod­els to at­tract cus­tomers both in the ur­ban and ru­ral ar­eas of the coun­try. And it has launched yet another $100m in­vest­ment plan to in­crease its pro­duc­tion ca­pac­ity to 1m units over the next two years.

"In fact, we have never stopped in­vest­ing in mod­erni­sa­tion of equip­ment and ma­chin­ery and in ca­pac­ity ex­pan­sion," a com­pany ex­ec­u­tive told Dawn. "The ex­pan­sion plan is be­ing un­der­taken not only to main­tain our mar­ket leader sta­tus but also to cap­ture a big­ger slice of the pie through the launch of new mod­els and heav­ier bikes," the ex­ec­u­tive said on the con­di­tion of anonymity as he was not au­tho­rised to give state­ments about the com­pany's fu­ture in­vest­ment plans.

The ex­pan­sion will cre­ate 800 di­rect jobs, tak­ing the to­tal num­ber of the com­pany's em­ploy­ees close to 5,000. "Be­sides new jobs at our plants, we will cre­ate thou­sands of new in­di­rect jobs in the ser­vices sec­tor," the ex­ec­u­tive said, adding that a chunk of the planned in­vest­ment will be spent on the ex­pan­sion of the Sheikhupura plant.

Al­most the en­tire in­vest­ment is ex­pected to be made from the com­pany's own re­sources, as At­las Honda has re­mained debt-free over the last four con­sec­u­tive years de­spite the heavy in­vest­ments it has made dur­ing the pe­riod.

The com­pany's ac­counts for the year end­ing March show that it turned over more than Rs45.8bn in sales, against Rs25.5bn in 2010 - re­flect­ing a healthy growth of 80pc over the last six years. The profit-af­ter-tax also more than tre­bled dur­ing the pe­riod, from Rs712m to Rs2.35bn.

The com­pany sold over 620,000 units last year (April 2014-March 2015) and earned an af­ter-tax profit of Rs2.35bn, up 17.5pc from the Rs2bn it earned in the pre­vi­ous year.

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