FINANCIAL ANALYSIS

OF
INDUS MOTOR COMPANY LIMITED

BETWEEN

JULY 2004 AND JUNE 2009

Submitted To: Respected Sir A.B Khan

Submitted By: Sarfraz Ahmad (Roll No 09)

M. Com 2nd Semester

Department of Commerce

B.Z.U

Date 23 April 2010

(Total Words: 5,330)

SERIA Table Contents PAGE
L# #
1 Abstract 3

2 Reasons for choosing the 4

Organization
3 History of Company 4-6

4 Balance Sheet 2005-09 7&8

5 Income Statement 9

6 Financial Analysis with HONDA 10-13

Atlas and Market Industry
7 Ratio and Capital Structure 14-23
Analysis with HONDA Atlas and
Market Industry
8 Conclusion 24 & 25
 Page 3

What I’ll do?:-

I have collected the 5 years financial report of TOYOTA Company. Now I am able to make a
deep analyze of this company to check the financial strength in Pakistan. First of all I check
the operating efficiency of this company through a strong calculation of Current Ratio, Quick
Ratio, Inventory Turnover, Return on investment, Return on Equity, Cash Conversion Cycle,
Average Collection Period, Average Payment Period, and Net Working capital, Gross Profit,
Operating Profit, and Net Profit etc.

After this I would able to say, Is Company is toward expansion or not? If Yes then Why? What
is Financial Strength? In Weighted Average Cost of Capital, how much debt is included? I’ll
check the Capital Structure of and search the financial strategies of TOYOTA. I also check the
market efficiency of TOYOTA Company in Pakistan.

In last I make analyze of my report in two ways:-

Horizontal Analyze
Vertical Analyze

Horizontal Analyze help me to tell that whether company is going to expansion or not with
the passage of time. And In vertical analyze I compare the TOYOTA Company with Average
industry figures and declare the result of my report according to my point of view.
 Page 4

Reasons for choosing the organization:-

After selecting the topic, the next challenge for me was to choose the organization on
which I am going to base my research work. I again started brainstorming and came up
with many well known organizations, having large operations, but in Pakistan. After
gathering data and relevant information I ended with three business sectors,
Automobile industry, textile industry and tobacco industry. I choose best companies in
their respective class, but after applying hindsight I decided to go with Automobile
industry and the organization I selected was “Indus Motor Company Limited”.

History of Company:-
Indus Motor Company (IMC) is a joint venture between the House of Habib, Toyota
Motor Corporation Japan (TMC), Daihatsu Motor Company Ltd vehicles in Pakistan
through its dealership network. The company was incorporated in Pakistan as a public
limited company in December 1989 and started commercial production in May 1993.
The shares of company are quoted on the stock exchanges of Pakistan. Toyota Motor
Corporation and Toyota Tsusho Corporation have 25 % stake in the company equity.
IMC’s production facilities are located at Port Bin Qasim Industrial Zone near Karachi
in an area measuring over 105 acres. Indus Motor Company’s plant is the only
manufacturing site in the world where both Toyota and Daihatsu brands are being
manufactured. IMC’s Product line includes 6 variants of the newly introduced Toyota
Corolla, Toyota Hilux Single Cabin 4×2 and 4 versions of Daihatsu Cuore.

Mission:-
IMC’s Mission is reflected in our Company’s Slogan ACT #1 Action, Commitment and
Teamwork to become #1 in Pakistan. The Indus Team is committed to ACT so that it
achieves the #1 position in the Auto Industry in: Respect & Corporate Image Quality &
Safety Customer Satisfaction Production & Sales.
 Page 5

Vision:-
“To be the most respected and successful enterprise, delighting customers with a wide
range of products and solutions in the automobile industry with the best people and the
best technology”
Customer satisfaction

Core Value:-
Team Work Ethics & Practices Achieving market Leadership by Delivering Value to
Customers by:
1. Following our “Customer first” philosophy in manufacturing and providing
high quality vehicles and services that meet the needs of Pakistani customers.
2. Enhancing the quality an reach of our 3S Dealership Network
3. Employing customer insight and feedback for continuous corporate renewal,
including producer development, improving service and customer care

Bringing Toyota quality to Pakistan

1. Maximizing QRD (Quality, Reliability and Durability) by built-in-engineering,
2. Transferring Technology and promoting Indigenization at IMC and Vendor.
3. Raising the bar I all corporate functions to meet Toyota Global Standards.

Optimizing Cost by Kaizen

1. Fostering a Kaizen culture and mindset at IMC, its Dealers an Vendors.
2. Implementing Toyota Production System
3. Removing waste in all areas and operating in the lowest cost quartile of the
industry.

Auditors:-
M/s A.F. Ferguson & Co.

Legal Advisor:-
1. M/s A.K. Brohi & Company
2. M/s Mansoor Ahmed Khan & Co.
3. M/s Mahmud & Co.
4. M/s Sayeed & Sayeed Co.
 Page 6

Aims & Objectives of the Report:-

The main objectives and aims of this project are to analyze and evaluate the overall
performance of the company by applying different conceptual models and Discusses
the liquidity, cash flow situation and produce informative report usable by the users of
the statements assessing the financial position, performance and adaptability of the
organization. The performance evaluation is based on historic and current available
data about the operations of the company. Under the constantly increasing competition
in the business market, these analyses portray a very clear and informative picture to
the investors, shareholders, regulators and other players in the stock market. Finally the
project draws conclusions based on my analysis about the current situation and the
prospects of the Indus Motor Company Limited.

Over All Research Approach:-

Different analytical approaches are employed to assess the financial position and
performance of the organization to justify the set aims and objectives. It requires a
sound knowledge of financial ratios and their interpretation, business performance
measurement models, trend analysis, conclusions and making recommendations. To
obtain these objectives I applied my knowledge gained from my M.com studies and
have developed the appropriate skills required to do this research project.

For discussions and comparison I have gathered the last five years Financial Data but I
calculate three years FY06, FY07 and FY08. Using the figures from the financial
statements I have also made a trend analysis of these key indicators over the past years.
To have a wide and broader picture of the analysis I have also compared the figure of
Indus Motor Company Limited with its direct competitor which is Honda Atlas Cars
(Pakistan) Limited. Finally I have drawn conclusions of my overall findings and have
given some recommendations for better performance in future period. I have done my
research in a more rational and simple order and have discussed the matters one by one
in order to make things more clear and understandable. Moreover I have used graphical
representation to make my research report more effective.
 Page 7

Balance Sheet of INDUS MOTOR COMPANY LIMITED 2005-2009

Assets Year 2009 Year 2008 Year 2007 Year 2006 Year 2005
NON-CURRENT
ASSETS
Fixed Asset 39,34,473 40,33,762 20,93,852 17,16,590 998887
long term loans and 28,509 42,341 2,8487 1,019 388
advances
Long term deposit 7,222 7,222 6,629 5,181 5149
Finance under 4,021 12153
Musharika
Arrangements
Total Non Current 39,70,204 40,83,325 21,28,968 17,26,811 10,16,577
Asset

Current Asset
Stores and spares 128,483 232,142 2,27,191 2,26,169 137,028
Stock in trade 40,88,858 26,37,629 28,59,951 39,59,316 31,68,855
Trade debt 17,36,631 13,32,832 665,647 138,281 384,511
Finance under 3,710 5,811 29,259
Musharika
Arrangements
Loans and advances 894,459 737,372 401,918 414,338 302,888
Short term 16,876 23,148 47,523 9,134 4,371
prepayments and
trade deposits
Accrued return on 50,944 35,012 132,634 76,211 46,543
bank deposits
Other receivables 67,902 74,360 605,725 12,50,217 302,171
Investment 54,717
Taxation net 209,533 48,520 82,315
Cash and bank 97,31,166 43,28,585 85,43,263 74,16,180 67,17,999
balances
Total current assets 167,15,319 96,64,784 135,36,082 140,95,657 111,77,940
Total Assets 206,85,523 137,48,109 156,65,050 158,22,468 121,94,517
 Page 8

Liabilities & Equity Year 2009 Year 2008 Year 2007 Year 2006 Year 2005
Share capital 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
Issued subscribed 786,000 786,000 786,000 786,000 786,000
and paid up capital
Reserves 95,10,973 86,50,340 72,57,975 54,71,879 36,89,805
Total equity 102,96,973 94,36,340 80,43,975 62,57,879 44,75,805

Liabilities
Non current liabilities 503,700 532,138 210,149 120,035 54,650

Current Liabilities
Trade and other 39,42,988 27,93,554 28,92,017 25,99,911 20,22,227
payables
Advances from 59,26,529 985,972 45,14,480 66,20,869 56,03,342
customer Dealers
Accrued mark up 673 105 715 22,250 10,568
Short term running
finance
Liabilities against 14,660 3,714 5,735 27,925
asset subject to
finance lease
98,84,850 37,79,631 74,10,926 92,48,750 76,64,062

Total Equity & 206,85,523 137,48,109 156,65,050 158,22,468 121,94,517

Liabilities
 Page 9

Income Statement INDUS MOTOR COMPANY LIMITED 2005-2009

Year 2009 Year 2008 Year 2007 Year 2006 Year 2005

Net Sales 37864604 414,23,843 390,61,226 352,36,535 276,01,034

C.G.S 35540418 375,75,356 346,20,632 310,88,905 248,94,856

G.P 2324186 38,48,487 44,40,594 41,47,629 27,06,178

Less: 469985 487,373 509,986 404,917 294,304

Distribution
Cost

Admin exp 352249 297,284 265,302 242,456 277,653

822234 784,657 775,288 647,373 571,957

1501952 30,63,830 36,65,306 35,00,256 21,34,221

Other Operating 156479 306,193 348,430 321,746 186,614
exp

1345473 27,57,637 33,16,876 31,78,510 19,47,607

Other Operating 727080 786,834 956,494 10,21,212 449,443
Income

2072553 35,44,471 72,73,370 41,99,722 23,97,050

Finance Cost 26540 2,760 43,889 126,945 94,093

E.B.I.T 2046013 35,41,711 42,29,481 40,72,777 23,02,957
Taxation 660911 12,50,866 14,83,780 14,24,313 818,311
E.A.T 1385102 229,0845 27,45,701 26,48,464 14,84,646

E.P.S 17.62 29.15 34.93 33.70 18.89

 Page 10

FINANCIAL STATEMENT TREND ANALYSIS:-

1) Current Assets:
Current assets of the Indus Motor Company Limited are mainly comprised of the
inventory, cash, loans & advances and other receivables as there had been no debtors
for the company as its sales are on cash basis.

In FY2005 Current assets were 111,78 but In FY06 current assets were Rs.14, 096
(million) which decreased in FY07 to Rs.13, 536(million) and kept decreasing and in
FY08 these were Rs.9, 665(million). The reason is that other receivables have decreased
as previous outstanding debts have been recovered and also the cash and bank balance
has reduced. The company was facing cash deficits and therefore accelerated its
recovery of receivables but still the company seems to be in liquidity problems. But in
2009 current assets were 16,715 which is higher than any other year and it shows that
company is now in strong position.

Years 2009 2008 2007 2006 2005

Current Assets (PKR) 16,715 9,665 13,536 14,096 11,178

20,000
Current Assets
15,000
10,000
5,000
0

2) Current Liabilities:-
Current liabilities of Indus Motor Company limited mainly include trade and other payables,
finance leases and advances from customers and dealers.
 Page 11
Current liabilities were 7,664 in 2005 and then increase the next year Rs. 9,248(million) in
FY06. But which decreased to Rs. 7,411(million) in FY07. The main cause of this reduction is
that the advances from customers, dealers and accrued mark-up. . In the reporting year 2008
liabilities were Rs.3, 780(million) and the reason for such a dramatic reduction is elimination of
advances from customers as the demand for Cars in Pakistan fall significantly. But in 2009 it
increased to Rs. 9,885 (Millions) and again company try to maintain its shares.

Years 2009 2008 2007 2006 2005

Current Liabilities (PKR) 9,885 3,780 7,411 9,248 7,664

Current Liabilities
3
3
2
2
1
1
0
09

08

07

06

05
20

20
20

20

20

3) Sale Revenue:-
Sales of Indus Motor Company Limited shows an increasing form 2005 to 2008 but in 2009
decreases with a great margin. The company’s sales in FY 05 was 27,601 and in FY 06 were Rs.
35,237(million) and increased to Rs. 39,061 in FY07, which are at a level of Rs. 41,424 in FY08.

FY 07 showed an increase in sales up to 19% compared to FY06. But in 2009 it decreases and
sales was 37,865.

Company was able to increase the sales due to its strong brand name and quality resulting in an
increased by 6% in FY08 compared to FY07. Indus Motor Company Limited managed to
achieve sales growth despite of the Global Economic Crunch which also affected the automobile
industry but the increase in sale revenue was mainly due to high selling price rise rather than sale
volume as numbers of cars sold were less than the previous financial year. The demand of cars in
Pakistan has sharply fallen as other competitor’s like Honda Atlas and Suzuki Motors also
struggled to maintain their sale volume.
 Page 12
The car financing became more expensive due to increase of 200bps in discount rate during
FY08. As a result, there was a slowdown in car financing amid rising mark up rates and tight
documentation of car financing due to significant rise in NPLs of the banks. The rising trend of
fuel prices also forced the new buyers of small cars to switch to motorcycle mainly due to
cheaper cost and low fuel consumption.

Number of Cars sold by Indus Motor in FY06 was 30,527, in FY07 these were 35,762
cars and 33,640 in FY08. Where as Honda Atlas’s cars sold in these years show a continuous
decreasing trend. Sales of Honda Atlas’s cars were 28,134 in FY06; in FY07 cars sold were
18,361 and 14,201 in FY08.

Years 2009 2008 2007 2006 2005

Sales in Rs. (millions) 37,865 41,424 39,061 35,237 27,601

Sales Revenue
3
3
2
2
1
1
0
09 08 07 06 05
20 20 20 20 20

4) Profit after Interest and Tax:

Form 2005 to 2007 EBIT increases But last two years EBIT decrease Consistently. In FY
2005 2,303 and In FY06 profit was Rs. 2,649 (millions), which increased to a level of Rs.
2,746(million) in FY07. The increase relates to the increased sales and decreased finance charges
in FY07. Very next year after the successful year, the profits reduced and are Rs. 2,291(million).
And decrease in profit continues to 2009 years and in 2009 EBIT was 2,046. Indus Motor has
reduced its Gross Profit margin by about 2% in FY08 and is not much different from previous
years. The distribution cost in FY08 has reduced as compared to previous year, but
administrative expenses have increased. The reported finance charges have dropped by about
93% in FY08 compared to FY07 but Indus Motor still has decreased profits.
 Page 13
Major reasons behind the decline were low sales volume, appreciating Japanese yen
against the Pak rupee and higher steel prices, which negatively impacted the company's bottom
line. During the period under review, world steel prices grew 11.0% to US $636 per ton (average
price) from US $574 per ton (average price) in 9mths'07.

Whereas comparing these results with Honda Atlas, a competitor, its results are not as
promising as of Indus Motor. In the last three years, Honda Atlas had a profit figure of Rs.
705(million) in FY06 which decreased to a loss of Rs. 265(million) in FY07 and the next year,
FY08, it managed to have a positive figure but still profits were too low, and are only Rs.
75(million).

Annual Report 08, Honda Atlas

Years 2009 2008 2007 2006 2005

Profit after tax Rs. (million) 2,046 2,291 2,746 2,649 2,303

E.B.I.T
3
3
2
2
1
1
0
09 08 07 06 05
20 20 20 20 20
 Page 14

Ratio Analysis:-

SHORT- TERM LIQUIDITY

Current Ratio and Acid Test Ratio:-

A measure of the degree to which current assets divided by current liabilities is called
current ratio. A high ratio indicates a good probability the enterprise can retire current
debts. A ratio of 2.0 or higher is a comfortable financial position for most enterprises.

A stringent test that indicates if a firm has enough short-term assets to cover its
immediate liabilities, without selling its inventory. The acid-test ratio is far more
strenuous than the current ratio, primarily because the current ratio allows for the
inclusion of inventory assets.

As Indus Motor is a manufacturing concern so it has more of inventories in its

stock. In FY 05 the ratio was 1.46 and In FY 06 the ratio was 1.49 but in FY07 the ratio
increases to 1.82 times which is a well managed position. In FY08 the figure has
improved more and is 2.55 which show Indus Motor’s strong position. While the Acid
test ratio in FY 06, the ratio was 1.07 rising to 1.44 in FY07 and further rising to 1.85 in
FY08. The Reason for such improvement is that although current assets has reduced but
current liabilities has reduced more as compared to current assets which caused to
improve the current ratio. As the current ratio is above 2 thus it indicates over
capitalization in working capital which is due to huge piling of inventories by the
company. This indicates that the company is struggling in its working capital
management and sharp decrease in cash balance warns that this may lead company to a
cash deficit situation. The Current assets have reduced by about 31% and current
liabilities have reduced by about 60% in FY08 as compared to FY06. Reason for
reduction in current assets is mainly because of other receivables of Indus Motor which
have reduced by more than 94% since FY06, and current liabilities reduced mainly
because of lower advances from customers and dealers which have reduced by about
85% since FY06. But in 2009 it current ratio was 1.69 which was a negative and the main
cause of reduction in current ratio was decrease in Sales volume. If we compared Indus
with Honda than Indus is in a strong position because in FY 09 current ratio of Honda
was only 1.1
 Page 15

Years 2009 2008 2007 2006 2005

Current Ratio (times) 1.69 2.55 1.82 1.49 1.46

Current ratio
3
3
2
2
1
1
0
09

08

07

06

05
20

20

20

20

20

Years 2009 2008 2007 2006 2005

Acid Test Ratio (Times) 1.68 1.85 1.44 1.07 1.44

Acid Test Ratio

8
6
4
2
0
09 08 07 06 05
20 20 20 20 20
 Page 16

PROFIT MARGINS

Gross Profit Margin and Net Profit Margin:-

Indus Motor does not show a drastic fluctuation in Gross Profit Margin. In FY 06, the gross
profit margin was 11.77% when Pakistan economy has witnessed huge demand for cars mainly
due to easy leasing terms offered by the banks in Pakistan. In FY 07 Gross profit reached to
11.36%, decrease was due to fall in Car’s Demand in Pakistan mainly because of Interest rate
increase and strict revised leasing policies of Banks. Inflation also had some affects on it.
Inflation in FY06 was 7.89 which increased to 10.27 in FY07.

In FY08 GP margin was low. The reason was high inflation and currency fluctuation. Pak rupee
depreciated 8.5% against Japanese yen to 1¥ = Rs 0.561 (average price) in 9mths'08 from 1¥ =Rs
0.517 (average price) in the same period last year, causing the input cost to increase beyond
expectation.

In FY 2009 G.P decrease to its minimum level than before (6.14%). The main reason of decrease
the G.P margin is due to unstable environment of the country and due to increase in terrorism
activities.

Whereas Honda Atlas had significant affect on its Gross Profit Margin and even in FY07
it decreased to about 1%, compared to FY06 and FY08, in which margin was about 4%.

The net profit ratio is net profit expressed as a percentage of total sales. Net profit is taken
before tax and other indirect costs.

Indus Motor Company Limited had net profit ratio of 3.66% in FY09 which was the
lowest in the four years as it was above 7% in last two reported financial years. In FY07 all
operating expenses i.e. administration, distribution and others increased by about 16%
compared to previous year, finance cost decreased by about 65% and the Taxation Charges had
increased by about 4%. In FY09 Company made a profit of 3.66%. One of the most important
factor was that the company’s other income has decreased by about 18%. This performance
indicator exhibits that company is struggling to maintain its profitability during the period of
global and domestic economic recession and high inflation pressures. A similar picture exhibits
Honda Atlas, a competitor,
 Page 17

Which has continuously decreasing profit margins as the net profit ratios of Honda
Atlas are 2.75, 1.55 and .51 for the year ending 06, 07 and 08 respectively?

The reasons for lower profitability of Indus Motor and the auto sector in general,
are the falling demand of cars, (especially decline in purchasing power of the middle-
income group of the population) due to high inflation. Also, tightening of monetary
policy and resulting interest rates also hit the demand for cars along with raising the
finance costs for the companies. Banks became more prudent, after they were hit by
huge losses in their car financing portfolios. Thus, the car financing facilities offered by
the banks were restricted and made stringent.

Years 2009 2008 2007 2006 2005

Gross Profit Margins % 6.14 9.29 11.36 11.77 9.8

G.P Margin
8
7
6
5
4
3
2
1
0
09 08 07 06 05
20 20 20 20 20

Years 2009 2008 2007 2006 2005

Net Profit Margins% 3.66 5.53 7.02 7.51 5.38

 Page 18

N.P Margin
8
6
4
2
0
09 08 07 06 05
20 20 20 20 20

PROFITABILITY

Return on Capital Employed (ROCE) and Return on Equity:-

Return on Capital Employed or ROCE is a ratio that indicates the efficiency and
profitability of a company's capital investments. In other words the ROCE ratio is an
indicator of how well a company is utilizing capital to generate revenue. ROCE should
normally be higher than the rate that the company borrows at; otherwise any increase
in borrowings will reduce shareholders' earnings.

A measure of the net income that a firm is able to earn as a percent of stockholders
investment Return on Equity (ROE) is one measure of how efficiently a company uses
its assets to produce earnings. Many analysts consider ROE the single most important
financial ratio applying to stockholders and the best measure of performance by a firm's
management. FY06 showed outstanding figures of return earned against the capital
employed which reached up to 41.52% clearly showing the efficient usage of capital
resources. In FY07 a year of disappointment, where ROCE decreased by about 20% the
statistics shows that PAIT figure has not changed significantly but the capital employed
has increased by about 29% in FY07. In FY08 ROCE has again reduced by about 31%
and this time the fall is again due to capital employed, which has increased in this year
by about 21%. The company need to reschedule and improve its financing policies and
must control the costs and other expenses to attain better profits in order to get to the
better return on the capital employed. Indus Motor Company Limited again has a
decreasing trend in the returns with respect to the shareholder’s equity. In FY06 it was
42.32% falling to 34.13% in FY07 and even further dropping to 24.27% in FY08. And this
reduction in ROCE and ROE continue in FY 09.
 Page 19
Honda Atlas’s ROE figure is not as good as Indus Motor’s. In FY06 ROE is 26.07%, and
worsened in the next year i.e. FY07 and is -10.83% while improved marginally in FY08
at a level of 2.32%.

Years 2009 2008 2007 2006 2005

Return on Capital Employed 12.82 22.98 33.26 41.52 32.77

Formula:- Net Profit (EAT) / Capital Employed (Equity + Non current liabilities)

R.O.C.E
14
12
10
8
6
4
2
0
09 08 07 06 05
20 20 20 20 20

Years 2009 2008 2007 2006 2005

Return on Equity % 13.45 24.27 34.13 42.32 33.17

R.O.E
50
40
30
20
10
0
09 08 07 06 05
20 20 20 20 20
 Page 20

WORKING CAPITAL TURNOVER PERIODS

1) Debtors Collection Period:-

Indus Motor maintains a very low amount of trade debtors and is well managed. In
FY06 debtors collection period was only 6 days and remained same next year i.e. FY07
but in FY08 it increased and is 9 days and in FY 09 increased by 1 day. Whereas Honda
Atlas, the direct competitor, it does not maintain any trade debtors.

Years 2009 2008 2007 2006 2005

Debtors Collection Period 10 9 6 6 5

(Days)

Debtors Collection Period

14
12
10
8
6
4
2
0
09 08 07 06 05
20 20 20 20 20

2) Inventory Turnover Period:

Inventory turnover reflects how frequently a company flushes inventory from its
system within a given financial reporting period. The measure can be computed for
any type of inventory—materials and supplies used in manufacturing or service
delivery, work in progress (WIP), finished products, or all inventory combined.
 Page 21
The figures are better as compared to the competitors despite Honda Atlas has an
improved since FY06 to FY08, which is 62, 59 and 42, in FY06, FY07 and FY08
respectively, but not as efficient like Indus Motor which has reduced its days from 47
days in FY06 to only 26 days in FY08. The company has improved its position by
reducing the inventory turnover period continuously. The company seems to pursue a
policy of reducing its inventory level and to bring it in line with the sale demand. This
should be a good policy as it should reduce the unnecessary tied up investment in
inventories and to pursue a better treasury management but in FY 09 inventory period
increases very high (49 days) that show a worst year for Indus Motor.

Years 2009 2008 2007 2006 2005

Inventory turnover Period (Days) 49 26 30 47 38

Average age of Inventory

14
12
10
8
6
4
2
0
09 08 07 06 05
20 20 20 20 20

3) Market Value per Share:-

Indus Motor Company Limited had upwards trend in its share price till FY07 where its
share’s price was at its peak, at level of Rs.305.5/share. In FY07 it had a tremendous
increase in the value. But in FY 09 it drops to 192.03 And like others, Toyota was also
not safe from the effects of the policies of import, and its share price too declined in the
reporting FY08, and dropped down to Rs.200.05.

Years 2009 2008 2007 2006 2005

Market Value Per Share (PKR) 192.03 200.05 305.50 191.00 180.05
 Page 22

15
Market Value per Share
10
5

0
09 08 07 06 05
20 20 20 20 20

4) Earning Per Share (EPS):-

The portion of a company's profit allocated to each outstanding share of common
stock. Earnings per share serve as an indicator of a company's profitability.

EPS of Indus Motor has changed over the period in the same fashion as its profitability.
In FY06 EPS was PKR 33.7 as compared Honda Atlas, a competitor, EPS of PKR 9.88. In
the year 2008 Indus Motor reported a low EPS of 29.15, whereas Honda Atlas has a very
low EPS of 0.55 in FY08. And in FY 09 EPS was 17.62 but still higher than Honda. 29.15

Years 2009 2008 2007 2006 2005

Earnings Per Share (PKR) 17.62 29.15 34.93 33.7 18.89

Market Value per Share

12
8
4
0
09 08 07 06 05
20 20 20 20 20
 Page 23

5) Dividend per share and Dividend Pay out Ratio:-

The dividends paid by the company for the FY06 were Rs.12.00 per share represented
35.61% dividend Payout. In FY07 it increased to Rs.13.00 per share. Indus Motor
maintains a dividend policy of dividend payout between 30 to 40%. The Dividend per
share in FY08 was Rs.10.50 in FY08 because of relatively low earning per share but the
dividend payout ratio remained in the same range. Due to drop in Earning per share
and Dividend per share in FY08 and FY 09, the market value of Indus Motor has also
fallen.

Formula:- Dividend payout ratio = Dividend per share / Market price per share

Years 2009 2008 2007 2006 2005

Dividend Pay Out Ratio (%) 33.5 36.03 37.21 35.61 30.00

Dividend Per Share (PKR) 8.35 10.50 13.00 12.00 10.5

Dividend Payout Ratio (%)

15

10

0
09

08

07

06

05
20

20

20

20

20

15
Dividend Per Share
10

0
09 08 07 06 05
20 20 20 20 20
 Page 24

CONCLUSION:-
From the hindsight analysis of Indus Motor Company Limited it is evident that the profitability
of the company is satisfactory while net profit and gross profit margins are too much extent
maintained. There are some problems that the company needs to address with its adequate
decision making. The Company needs to take appropriate steps to deal with the changing
business and regulatory scenario by improving their organizational policies and managing costs
of production and overhead expenses to improve the profitability of company. Company also
needs to device ways to increase sales in order to run its production to its maximum optimal
capacity in order to achieve economies of scale. The liquidity position especially the liquid cash
availability is to be ensured by the company as currently it does not seem sufficient and
adequate. In the FY08, except for sale revenue all the other performance indicators including
profitability, liquidity, gearing, sale volume, working capital and market capitalization
exhibited a low as compared to previous reported financial years. It is worth mentioning that
the significant reasons for these adverse movements were external factors like adverse foreign
exchange rate movements, high inflation and fall in overall demand of cars due to recession in
economy of Pakistan which has affected the company’s business. Gearing conditions over three
years is showing an increasing trend and no new share issue has been witnessed.

Good profitability over past years as compared to other competitors especially Honda Atlas has
resulted in a better share price than other companies in the automobile industry in Pakistan.
The increased P/E ratio shows that there are potential of increased earnings in the future and
exhibits strong investor confidence. A high Interest cover ratio along with low financial gearing
shows that the company can raise debt capital as a source of finance with ease when needed. It
is advisable for the company that it restructures its capital base with revised gearing as a geared
company is privileged with comparatively low weighted average cost of capital.

The performance of the car assemblers remained lackluster owing to the economic meltdown in
the country. In the wake of rising steel prices, appreciation of yen against the rupee and
imposition of 5% FED in the budget, the car assemblers passed the increase of cost to the
consumers. The increase in car prices weakened the demand for cars. Also, high interest rates
and reduction in car financing facility offered by banks further depressed the demand for cars.
Thus, the industry car sales went down to only 147,441 units sold in FY08. Sales went down
mainly in the 800cc and 1000cc (economy car segment) categories, which contribute 60% to the
total auto sales. Other macroeconomic factors, such as depreciation of Pak rupee against the US
dollar and Japanese yen, higher steel prices, the imposition of 5% Federal Excise Duty on cars,
above 850cc, imposition of Withholding Tax at the registration stage, and additional regulatory
duty of 50% on high-end vehicles, increased the cost of production and hampered the
profitability of the auto companies.
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The market share of Pak Suzuki declined to 62% in FY08. Dewan Motor's market share also
decreased to 5% in FY08. However, Indus Motor and Honda Atlas gained in terms of market
share. Honda Atlas's market share increased to 7% in FY08. Indus Motor Company performed
better than the other companies in the auto sector and its market share was 26% in FY08. This
company managed to widen its market share largely due to the successful launch of new model
of Corolla.

It is forecasted that the demand of new cars in Pakistan shall increase in years to come as a
potential demand for 2012 is at 500,000 units which currently in FY08 is 164,710.

The Pakistan Association of Auto Parts and Accessories Manufacturers (PAAPAM) and
Pakistan Automobile Manufacturers Association (PAMA) in a joint presentation have suggested
various steps that should be taken by the government to arrest the slowdown in sales. The two
associations appealed to the government to withdraw the 5 per cent excise duty on cars and
impose a ban on import of used parts instead of allowing their import after imposing 30 per
cent redemption duty.

Observers say that much will depend on the prices of the cars as the nominal rate of growth of
the local auto industry has primarily been blamed on sharp increases in prices in the past. On
their part, the manufacturers have blamed numerous devaluation and sharp increases in the
cost of inputs such as power, gas and petroleum and particularly heavy taxation for the sharp
price increases.

The auto industry is currently faced with a number of problems. However, in the future, gross
margins can be expected to improve as future results may depict positive impact of lower steel
prices and stabilization of the exchange rate. Another positive aspect for the auto sector to
consider is that a revival in auto sales have been witnessed in the last few months of FY09 as
June car sales were up by 6 percent on month-on-month basis - the fourth consecutive growth
on monthly basis. Indus and PSMC posted growth of 8% and 7% respectively. The demand for
cars is expected to pick up after the first signal of monetary easing in April 2009 when the
discount rate was cut from 15% to 14%. Declining interest rate in the economy is a promising
sign for the future sales of the sector. Also, the elimination of 5% FED in the Budget 2009-10 will
provide a relief to the auto sector. This would reduce the price of cars and thus help raise
demand to a certain extent.