Lahore - Pak Suzuki Motor Company (PSMC) announced its 2Q2016 result and reported earnings of Rs488mn. This result was below market expectations.

Company’s sales fell 7 percent YoY to Rs19.0bn in 2Q2016. This decline was mainly due to drop in volumetric sales post culmination of Apna RozgarTaxi Scheme of the Punjab Govt.

PSMC’s sales in the outgoing quarter were 26,011 units, a decline of 19 percent YoY (down 11 percent YoY to 56,192 units in 1H2016). Excluding Taxi units (Ravi and Bolan), sales were robust as they increased 23 percent YoY to 16,911 units in 2Q2016 (17 percent YoY to 34,864 units in 1H2016).

Gross profit fell 39 percent YoY to Rs1.8bn in the outgoing quarter while gross margins contracted by 5ppts to 9.4 percent. This can be attributed to ~9 percent appreciation of Japanese Yen (JPY) against the local currency.

To point out, sudden appreciation of Yen was due to Brexit, fears of which have eased out. Moreover, Shinzo Abe’s announcement of US$265bn stimulus package for Japanese economy is expected to keep Yen appreciation in check, we believe.

PSMC reported tax expense of Rs600mn, which resulted in effective tax rate of ~55 percent. This was higher than expectations and includes the impact of super tax, we believe. This higher than anticipated effective tax rate resulted in lower earnings in the outgoing quarter.

On QoQ basis, revenue fell 5 percent due to 13.8 percent decline in volumes. Gross margins contracted 1.7ppts from 11 percent in 1Q2016.