HCAR has reported a NPAT of PKR658mn (EPS: PKR4.61) for 1QMY23, up c.3x QoQ. This is strong result from HCAR, where the deviation from our projected EPS of PKR0.20 is primarily due to higher-than-expected gross margin and lower taxation.
1QMY23 key highlights:
Net revenue reached PKR30bn (in line with estimates), up c.40% YoY owing to c.25% higher volumes to c.9,400 and multiple price hikes from Nov’21.
Gross margin stands at 6.3%, higher than expectations, likely due to i) new Civic contribution in overall sales mix and ii) partial price increase in Mar’22. However, gross margin trimmed by c.1ppt YoY owing to elevated input costs and PKR depreciation.
Distribution expenses nearly doubled on account of greater volumetric sales and promotions with regards to new Civic launch. On the other hand, administrative expenses increased by c.45% YoY.
HCAR booked turnover tax in 1Q of PKR378mn and a portion of super tax, likely due to working capital concerns. Hence, tax rates in the coming quarters will be higher than normal.
Other income rose by c.60% YoY likely due to a rise in customer advances. We believe, large exchange losses have resulted in elevated other expenses.
We expect HCAR unit sales to remain relatively flat in the upcoming quarter. However, administrative constraints related to opening of LCs by the SBP will continue to further strain production, going forward. According to channel checks, HCAR is presently focusing on rolling out orders of the new City due to large order book and part shortages related to the Civic. However, margins are likely to be under pressure despite multiple price increases due to sharp PKR slippage. Sales are likely to decline in MY23. Our Mar’23 TP of PKR235/sh for HCAR is currently under review as we await quarterly accounts to revisit our investment thesis.