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PROJECT REPORT

AUTOMOBILE INDUSTRY

HONDA PAKISTAN LTD.

Course: Financial Management (9305)


Group Name: Financial Experts
Members:
1. Munib Ibad (3917) - G.Leader

2. Muhammad Qasim (3766)

3. Noman Jaffar (2142)

4. Ayaz Hakeem (3259)

5. Moizuddin ( )

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PREFACE

We Munib Ibad, Muhammad Qasim, Noman jaffar, Ayaz Hakeem and


Moizuddin are students of the Bachelor of Business Administration – Pakistan
Air Force- Karachi institute of Economics and Technology Main Campus.

This report is a part of the course requirement for Financial Management


being conducted at PAF- KIET - Main Campus by Mirza Shakeel Baig.

The report will not only help other students to obtain knowledge regarding
the product but will help them to write the better reports in the future.

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ACKNOWLEGMENT

First of all we are grateful to Allah. Without His help, this Financial
Management report would not have reached its successful completion. Then
we would like to thank the instructor of this course M. Shakeel Baig, who
patiently answered all our queries and was always willing to help us, and
guide us throughout this research study. Without his support, this research
report would not have reached its successful completion.

Finally we thank PAF-KIET for providing us the better environment to work and fulfill
this project requirement.

TABLE OF CONTENTS

Title Page............................................................................…..1
Preface................................................................................…..2
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Acknowledgement...............................................................…..3
Table of Contents
……………………………………………………………………………………..
…4
History
………………………………………………………………………………………
……………….. 5
Company Profile
………………………………………………………………………………………
….6
Mission & Vision Statement
…………………………………………………………………………7
Financial Data [2004- 2009]
………………………………………………………………………..8
Balance Sheets
Profit & Loss Accounts
Cash Flow statements
Statements of Equity
Data Analysis & Ratio Analysis
……………………………………………………………..……24
Graphs & Charts
Market Share & Market Value ……………….
………………………………………………...27
Earnings & Dividends
……………………………………………………………………….……….28
Sector wise progress
…………………………………………………………………………………30
Conclusion
………………………………………………………………………………………
………..31

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HISTORY

Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor
Company Limited Japan, and the Atlas Group of Companies, Pakistan.

The company was incorporated on November --, 1992 and joint venture
agreement was signed on August ---, 1993. The ground breaking ceremony
was held on April 17, 1993 and within a record time of 11 months,
construction and erection of machinery was completed. The first car rolled
off the assembly line on May 26, 1994. Official inauguration was done by
President of Pakistan, Sardar Farooq Ahmad Khan Leghari. Mr.Kawamoto,
President of Honda Motor Company Limited Japan was also present to grace
the occasion. The company is listed on Karachi, Lahore and Islamabad Stock
Exchanges.

On July 14, 1994, car bookings started at six dealerships in Karachi, Lahore,
and Islamabad. Since then the Dealerships Network has expanded and now
the company has sixteen 3S (Sales, Service and Spare Parts) and thirty 2S
(Service and Spare Parts) Pitstops network in all major cities of Pakistan.
Since the commencement of production in 1994, the company has produced
and sold more than 150,000 cars till Oct, 2008.

It is the constant endeavor of Honda Atlas Cars (Pakistan) Limited to achieve


No .1 Customer satisfaction. Honda Atlas Cars (Pakistan) Limited is
committed to meet customer expectations, and to provide good value for
money. Currently we are offering 8 different models of Honda CIVIC and CITY
cars in wide range of colors with unique technological and other features.

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CORPORATE PROFILE

Honda Motor Co., Ltd. operates under the basic principles of "Respect for the
Individual" and "The Three Joys" — commonly expressed as The Joy of
Buying, The Joy of Selling and The Joy of Creating. "Respect for the
Individual" reflects our desire to respect the unique character and ability of
each individual person, trusting each other as equal partners in order to do
our best in every situation. Based on this, "The Three Joys" expresses our
belief and desire that each person working in, or coming into contact with
our company, directly or through or products, should share a sense of joy
through that experience.

In line with these basic principles, since its establishment in 1948, Honda has
remained on the leading edge by creating new value and providing products
of the highest quality at a reasonable price, for worldwide customer
satisfaction. In addition, the Company has conducted its activities with a
commitment to protecting the environment and enhancing safety in a mobile
society.

The Company has grown to become the world's largest motorcycle


manufacturer and one of the leading automakers. With a global network of
507* subsidiaries and affiliates accounted for under the equity method,
Honda develops, manufactures and markets a wide variety of products,
ranging from small general-purpose engines and scooters to specialty sports
cars, to earn the Company an outstanding reputation from customers
worldwide.

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VISION

Focusing on “satisfaction” (customers’, associates’ and shareholders’)


with challenging spirit and flexibility, we are dedicated to supplying latest
generation cars with advanced technology, greater fuel efficiency and
competitive prices, alongwith friendly and efficient after sales back up,
maintaining “quality” as core of all activities.

MISSION

To be a dynamic, profitable and growth oriented company through market


leadership, excellence in quality and service adding value to the shares and
maximizing exports. To give attractive return to business associates, share-
holders as per their expectations and market value and employees according
to their abilities and performance, and to be good corporate citizen to fulfill
its social responsibilities.

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FINANCIAL DATA
[2004 – 2009]

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DATA ANALYSIS
&
RATIO ANALYSIS

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HONDA ATLAS- FINANCIAL ANALYSIS
===================================================================
========================

Income Statement (Rs'000) FY'04 FY'05 FY'06 FY'07


FY'08 FY'09

===================================================================
========================

Total Revenue 9,358,369 16,587,217 25,638,698 17,055,115


14,715,495 14,149,646

Cost of Goods Sold 8,602,391 16,304,182 24,471,184 16,955,181


14,088,001 13,973,144

General & Administrative Expenses 0 97,771 149,877 214,889


139,163 139,749

Selling and Distribution Expenses 160,968 101,724 134,518 147,274


209,677 190,088

Operating Profit (EBIT) 595,010 83,540 883,119 -262,229


297,268 -399,516

Financial Charges 2,288 5,956 46,356 305,491


233,651 222,769

Net Income Before Taxes 620,193 258,629 1,133,704 -481,649


63,617 -622,285

Net Income After Taxes 408,683 162,179 705,294 -264,540


75,010 -401,833

------------------------------------------------------------------------------------------------------------------------------------------------------------
-----------

Balance Sheet (Rs'000) FY'04 FY'05 FY'06 FY'07


FY'08 FY'09

------------------------------------------------------------------------------------------------------------------------------------------------------------
-----------

Stores & Spares 19,546 22,878 29,736 50,316


83,101 101,942

Stock in Trade 1,708,539 3,159,153 4,169,120 2,704,946


1,612,696 2,954,091

Cash & Bank Balances 3,514,909 5,873,987 360,619 219,859


231,880 20,487

Total Current Assets 6,328,907 10,286,487 6,269,918 3,681,213


2,435,529 3,929,738

Total Non Current Assets 670,253 1,506,296 2,904,357 4,623,904


4,381,215 6,012,350

Total Assets 6,999,160 11,792,783 9,174,275 8,305,117


6,816,744 9,942,088

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Total Current Liabilities 5,066,925 9,698,369 5,796,972 3,906,115
3,087,066 5,614,243

Total Non Current Liabilities 0 0 672,095 1,958,334


500,000 1,500,000

Total Liabilities 5,066,925 9,698,369 6,469,067 5,864,449


3,587,066 7,114,243

Paid Up Capital 420,000 420,000 714,000 714,000


1,428,000 1,428,000

Total Equity 1,932,235 2,094,414 2,705,208 2,440,668


3,229,678 2,827,845

RATIO ANALYSIS
------------------------------------------------------------------------------------------------------------------------------------------------------------
-----------

LIQUIDITY RATIO FY'04 FY'05 FY'06 FY'07 FY'08


FY'09

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-----------

Current Ratio 1.25 1.06 1.08 0.94 0.80


0.70

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ASSET MANAGEMENT FY'04 FY'05 FY'06 FY'07 FY'08


FY'09

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Inventory Turnover (Days) 56.18 54.21 54.29 58.50 43.33


78.73

Total Asset turnover 1.34 1.41 2.79 2.05 2.16


1.42

Sales/Equity 4.84 7.92 9.48 6.99 4.56


5.00

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-----------

DEBT MANAGEMENT FY'04 FY'05 FY'06 FY'07 FY'08


FY'09

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------------

Debt to Asset (%) 72.39 82.24 70.51 70.61


52.62 71.56

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Debt/Equity (Times) 2.62 4.63 2.39 2.40
1.11 2.52

Times Interest Earned (Times) 292.64 44.42 25.47 -0.58


1.27 -1.79

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PROFITABILITY (%) FY'04 FY'05 FY'06 FY'07


FY'08 FY'09

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Gross Profit Margin 8.08 1.71 4.55 0.59 4.26


1.25

Net Profit Margin 4.37 0.98 2.75 -1.55 0.51


-2.84

Return on Asset 5.84 1.38 7.69 -3.19 1.10


-4.04

Return on Common Equity 21.15 7.74 26.07 -10.84 2.32


-14.21

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PER SHARE FY'04 FY'05 FY'06 FY'07


FY'08 FY'09

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Earning per share 9.70 3.90 16.80 -3.71


0.55 -2.81

GRAPHS AND CHARTS

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Market Share

Honda Atlas Cars Pakistan (HCAR) had a market share of 11% in FY09,
following Pak Suzuki (market share: 52%) and Indus Motors (market share:
35%), the two leading car manufacturers in Pakistan. The market share of
Pak Suzuki declined to 52% in FY09 from 62% in FY08. Dewan Motor's
market share also decreased from 5% in FY08 to just 2% in FY09.

However, Indus Motors and Honda Atlas gained in terms of market share.
The market share of Indus Motors improved from 26% in FY08 to 35% in
FY09. Honda Atlas's market share surged from 7% in FY08 to 11% in FY09.
The sales of both Pak Suzuki and Dewan Motors plunged considerably by
56% and 75% respectively. Indus Motors and Honda Atlas also registered
lower sales but by 29% and 28% respectively.

Market value
The Company has been a consistent distributor of dividends every year. The
board of directors of the company proposed a cash dividend of Rs 6.5 per
share (65%) for the financial year ended June 30, 2008. Thus the dividend
paid per share had increased from FY07. The company paid a cash dividend
of Rs 6.0 per share (60%) in FY07. Owing to the dividend policy and a good
performance of the company in FY08, the market price per share has
increased from that in 2007. The average share price during the period 1st
April 2009 to 21st August 2009 has been around Rs 15 per share.

EARNINGS & DIVIDENDS


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Dividend distribution to the shareholders is recognized as a liability in the
period in which it is
approved by the shareholders.

LATEST TRANSACTION BY HONDA


Honda Atlas Cars Pakistan Ltd.
Merger/Acquisition

Shirazi Capital (Pvt.) Limited acquired 22.77% stake in Honda Atlas Cars
Pakistan Ltd. (KASE: HCAR) from Yusfuf H Shirazi, Ifitikhar H Shirazi, Aamir H
Shirazi, Saquib H Shirazi and Ali H Shirazi on March 27, 2010. Yusfuf H Shirazi
sold 0.76 million shares and Ifitikhar H Shirazi, Aamir H Shirazi, Saquib H
Shirazi and Ali H Shirazi each sold 7.94 million shares. Yusfuf H Shirazi and
Aamir H Shirazi are Directors of Shirazi Capital (Pvt.) Limited and Honda Atlas
Cars Pakistan Ltd.

Investments - Available for sale

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Investments classified as available for sale are initially measured at cost,
being the fair value of consideration given. At subsequent reporting
dates, these investments are remeasured at fair value (quoted market
price), unless fair value cannot be reliabally measured. The investments,
for which the quoted market price is not available, are measured at cost
as it is not possible to apply any other methodology. Realized and
unrealized gains and losses arising from changes in fair value are
included in the net profit or loss for the period in which they arise.
All purchases and sales of investments are recognized on the trade date
which is the date that the company commits to purchase or sell the
investment. Cost of purchase includes transaction cost. At each balance
sheet date, the company reviews the carrying amount of the investments
to assess whether there is any indication that such investments have
suffered an impairment loss. If any such indication exists, the recoverable
amount is estimated in order to determine the extent of the impairment
loss, if any.

Capital risk management


The company’s objectives when managing capital are to safeguard the
company’s ability to continue as a going concern in order to provide returns
for shareholders and benefits for other stakeholders and to maintain an
optimal capital structure to reduce the cost of capital. In order to maintain or
adjust the capital structure, the company may adjust the amount of
dividends paid to shareholders and issue new shares. The company monitors
the capital structure on the basis of gearing ratio. This ratio is calculated as
borrowings divided by total capital employed. Borrowings represent long
term loans obtained by the company.

SECTOR WISE PROGRESS


Among the listed automobile assemblers, Pak Suzuki, Indus Motor, Honda
Atlas and Dewan Farooque Motors’ respectively hold 54 per cent, 22 per
cent, 15 per cent and 9 per cent market share in the passenger cars and
light commercial vehicle segments. Overall, Toyota Corolla remained the
market leader in the 1300cc and higher segment while Suzuki Cultus and
Suzuki Mehran emerged as triumphant in the 1000cc and 800cc cars
segment.

Honda Atlas Cars’ sales soared by 17 per cent to 28,134 units as against
24,066 units previously. Currently, Honda Atlas assembles only two vehicles
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namely Honda Civic and Honda City to tap the upper-end segment of car
market. Honda City sales stood at 1,229 units in June, almost double
compared to 626 units during the preceding month. Demand of Honda Civic
declined by 61 per cent to 341 units.

CONCLUSIONS

It is surely undoubted that HONDA is a giant by all means of Automobile


and Machinery sector of the word. It has experienced success in all
aspects of its operations. People, especially the customers of HONDA,
whether they be business or individual customers, like Honda and trust
the name. The credibility that Honda worldwide has been able to acquire,
during the short time period that the company has being in Japan and all
around the world and here in Pakistan, is immense by all definitions.

Firstly and probably most importantly the changing dynamics of the


customers and consumers. Honda has managed to satisfy its customers, of
all sorts, throughout its life here, however it must continue to do so.

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