HCAR has reported NLAT of PKR385mn (LPS: PKR2.70) for 2QMY23. This is a weak result from HCAR, where the deviation from our projected EPS of PKR2.08 is primarily due to lower-than-expected revenues and higher-than-expected other expenses.
2QMY23 key highlights:
Net revenue clocked in at c.PKR20bn, lower than IMS expectation of c.PKR22bn. The topline was down by 36% QoQ and 25% YoY, owing to c.40% QoQ lower volumes to c.5,600 units.
Gross margin stands at 3.4%, much lower than our expectation of 5.2% and down 2.9ppt/3.5ppt QoQ and YoY. This is likely due to i) compensation payments on late deliveries at Kibor+3% and, ii) lower realized unit prices.
Distribution expenses were down by 65% QoQ on account of lower volumetric sales. On the other hand, administrative expenses increased by c.65% QoQ.
HCAR has booked and estimated turnover tax in 2Q of PKR244mn and likely a good portion of super tax, which has elevated their tax rate to c.340%. We await the full quarterly accounts for further clarity.
Other income rose by c.50% YoY, likely due to a rise in customer advances. We believe large exchange losses to the tune of c.PKR400mn have resulted in elevated other expenses.
We expect HCAR unit sales to regain some momentum moving into the next quarter with their October sales showing some signs of respite. However, administrative constraints related to opening of LCs by the SBP will likely continue to further strain production. According to channel checks, HCAR is presently focusing on rolling out orders of the new City due to a 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 PKR200/sh for HCAR, implies a Neutral stance.