IMC Unfazed Even in Dire Economic Times

Despite widespread plant closures brought on by long-standing supply shortages, steep prices, and a subsequent drop in volume, Indus Motors (IMC) managed to turn a respectable profit in the second quarter of FY24 (actually, 31% more than in 2QFY23) and split 60% of its profits as dividends to its shareholders.

With volumes down 72%, revenues down 63%, and overheads up to 7% of revenue (from 2% in 2QFY23), the company made Rs1.7 billion in after-tax earnings in 2QFY24. Remarkably, the company’s net profit margin increased from 3% to 10% over the previous year.

Inflation is hurting every consumer at the moment, and high interest rates are making auto financing that much more expensive. Tighter prudential regulations by the SBP have also made car financing harder and more burdensome. If banks are giving out fresh loans, they are being vigilant about it as risks of loan defaults rise. In this scenario, IMC buyers are cash-based and perhaps believe that now is the ideal moment to buy a new Toyota vehicle.

Even then, its estimated revenue per unit sold rose 29% in 2QFY24 year on year, while costs rose lower—18%. This indicates the price for an average Toyota car sold in the market vs. the cost incurred on it. The rupee appreciation certainly helped it seems—the company’s gross margins of 8% vs. last year’s negative 1% is telling. Not only did IMC cut down prices, but it also improved its margins while doing it.

IMC’s “other incomes” in 2QFY24 accounted for 103% of its pre-tax income. The company’s fortunes really start to shift at this point since, even after deducting significantly greater overhead costs, net margins still exceed gross margins. In the first quarter of FY24, the company made nearly double the profits (1.8 xs) of the current quarter, so while FY24 may be turbulent for Pakistan for many economic and political reasons, Indus Motors is doing just great.

Source: Business Recorder