Pak Suzuki’s ‘Survival of the Fittest’

Pak Suzuki, Pakistan’s largest auto assembler, is going through its most difficult period since the company’s inception in the country as it suffered a Rs 12.9 billion loss in the first quarter of the calendar year.

Not least due to the declining volumes, but primarily as a result of the economy spiraling into complete disarray and the economic management being forced to make decisions that are drastically slowing down output. Import limitations in the country and a lack of enough supplies forced Suzuki to halt manufacturing for many days, but there were other implications.

Related: Pak Suzuki in Dire Straits

Suzuki has had to stop production for more than 52 days since August of last year, which equates to almost two months of non-production days (NPDs). As a result, volumes substantially decreased by 74% year over year in the previous quarter, 1QCY23. However, the company’s EBITDA (earnings before interest, taxes, depreciation, and amortization) was still favorable and increased by 42%. Price increases led to a 76% rise in revenue per unit sold (calculated for just automobile units) compared to a 65% increase in cost per unit sold. But the financial expense cost a lot of money!

With an average level of localization of just over 57%, the company is still heavily reliant on imported content and is required to make international payments in relation to it. The current import limitations, the inability of businesses to create LCs and make foreign payments on time, and rupee depreciation have all contributed to the cost of imports rising in addition to making them more expensive. As a result, the company suffered financing costs in the first quarter totaling 59% of revenue, mostly due to exchange loss on foreign liabilities.

Related: Sparing Swift, Entire Pak Suzuki Lineup Consists of Obsolete Cars

To keep things from getting worse, the company has chosen to change the method it makes payments—it will now make payments before receiving items. This will reduce foreign payables and exchange losses, but without easing import restrictions—which is an ideal situation for policymakers right now given the welcome current account surplus—supply constraints will persist, reducing production and extending delivery delays. It will be a long and grueling summer for local auto assemblers including Pak Suzuki, with oddly less work to be done.

Source: Business Recorder

Notify of
Inline Feedbacks
View all comments