Sarfraz Fm Toyota | Dividend | Inflation

FINANCIAL ANALYSIS OF

INDUS MOTOR COMPANY LIMITED

BETWEEN JULY 2004 AND JUNE 2009

Submitted To: Submitted By:

Respected Sir A.B Khan Sarfraz Ahmad (Roll No 09)

M. Com 2nd Semester Department of Commerce B.Z.U Date 23 April 2010

(Total Words: 5,330)

SERIAL Table Contents PAGE # #
1 Abstract 3

2

Reasons for choosing the Organization History of Company Balance Sheet 2005-09 Income Statement

4

3 4

4-6 7&8 9

5
6 7

Financial Analysis with HONDA 10-13 Atlas and Market Industry Ratio and Capital Structure 14-23 Analysis with HONDA Atlas and Market Industry Conclusion 24 & 25

8

First of all I check the operating efficiency of this company through a strong calculation of Current Ratio. Average Payment Period. . Return on Equity. Inventory Turnover.Page 3 What I ll do?:I have collected the 5 years financial report of TOYOTA Company. how much debt is included? I ll check the Capital Structure of and search the financial strategies of TOYOTA. Return on investment. Gross Profit. Average Collection Period. 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. and Net Working capital. Operating Profit. Quick Ratio. Is Company is toward expansion or not? If Yes then Why? What is Financial Strength? In Weighted Average Cost of Capital. Cash Conversion Cycle. Now I am able to make a deep analyze of this company to check the financial strength in Pakistan. After this I would able to say. I also check the market efficiency of TOYOTA Company in Pakistan. and Net Profit etc.

Toyota Hilux Single Cabin 4×2 and 4 versions of Daihatsu Cuore. After gathering data and relevant information I ended with three business sectors. Automobile industry. I again started brainstorming and came up with many well known organizations. having large operations. . 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. Mission:IMC·s Mission is reflected in our Company·s Slogan ACT #1 Action. IMC·s production facilities are located at Port Bin Qasim Industrial Zone near Karachi in an area measuring over 105 acres. Daihatsu Motor Company Ltd vehicles in Pakistan through its dealership network. Toyota Motor Corporation and Toyota Tsusho Corporation have 25 % stake in the company equity. 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 Limitedµ. the next challenge for me was to choose the organization on which I am going to base my research work. The company was incorporated in Pakistan as a public limited company in December 1989 and started commercial production in May 1993.Page 4 Reasons for choosing the organization:After selecting the topic. but in Pakistan. Commitment and Teamwork to become #1 in Pakistan. History of Company:Indus Motor Company (IMC) is a joint venture between the House of Habib. textile industry and tobacco industry. 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. The shares of company are quoted on the stock exchanges of Pakistan. Toyota Motor Corporation Japan (TMC).

Brohi & Company M/s Mansoor Ahmed Khan & Co. Auditors:M/s A. Implementing Toyota Production System 3. including producer development. 3. 2. Fostering a Kaizen culture and mindset at IMC. improving service and customer care Bringing Toyota quality to Pakistan 1.K. 3.F. M/s Sayeed & Sayeed Co. delighting customers with a wide range of products and solutions in the automobile industry with the best people and the best technologyµ Customer satisfaction Core Value:Team Work Ethics & Practices Achieving market Leadership by Delivering Value to Customers by: 1. . Optimizing Cost by Kaizen 1. its Dealers an Vendors. Employing customer insight and feedback for continuous corporate renewal. Maximizing QRD (Quality. Transferring Technology and promoting Indigenization at IMC and Vendor. 2. 2. Enhancing the quality an reach of our 3S Dealership Network 3. Legal Advisor:1. Following our ´Customer firstµ philosophy in manufacturing and providing high quality vehicles and services that meet the needs of Pakistani customers. M/s A. 2. Ferguson & Co.Page 5 Vision:´To be the most respected and successful enterprise. Reliability and Durability) by built-in-engineering. 4. Raising the bar I all corporate functions to meet Toyota Global Standards. Removing waste in all areas and operating in the lowest cost quartile of the industry. M/s Mahmud & Co.

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.com studies and have developed the appropriate skills required to do this research project. conclusions and making recommendations. business performance measurement models. Moreover I have used graphical representation to make my research report more effective. Finally the project draws conclusions based on my analysis about the current situation and the prospects of the Indus Motor Company Limited. FY07 and FY08. regulators and other players in the stock market. Finally I have drawn conclusions of my overall findings and have given some recommendations for better performance in future period.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. To obtain these objectives I applied my knowledge gained from my M. For discussions and comparison I have gathered the last five years Financial Data but I calculate three years FY06. 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. these analyses portray a very clear and informative picture to the investors. trend analysis. . performance and adaptability of the organization. shareholders. cash flow situation and produce informative report usable by the users of the statements assessing the financial position. Using the figures from the financial statements I have also made a trend analysis of these key indicators over the past years. 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. Under the constantly increasing competition in the business market. The performance evaluation is based on historic and current available data about the operations of the company. It requires a sound knowledge of financial ratios and their interpretation.

180 140.222 40.171 82.968 17.26.944 67.657 Total Assets 206.94.31.902 35.15.34.22.93.459 16.59.511 29.148 401.222 20.325 21.65.319 74.360 54.77.520 85.012 74.647 3.021 998887 388 5149 12153 Total Non Current Asset Current Asset Stores and spares Stock in trade Trade debt Finance under Musharika Arrangements Loans and advances Short term prepayments and trade deposits Accrued return on bank deposits Other receivables Investment Taxation net Cash and bank balances Total current assets 39.533 43.37.263 135.281 5.523 137.082 76.918 47.019 5.590 1.88.95.59.523 414.585 96.36.473 28.372 23.191 28.631 232.Page 7 Balance Sheet of INDUS MOTOR COMPANY LIMITED 2005-2009 Assets NON-CURRENT ASSETS Fixed Asset long term loans and advances Long term deposit Finance under Musharika Arrangements Year 2009 Year 2008 Year 2007 Year 2006 Year 2005 39.17.543 302.509 7.951 665.028 31.50.762 42.204 40.050 158.811 10.629 13.16.16.634 605.169 39.629 17.64.999 111.26.142 26.83.855 384.259 894.109 156.876 737.725 48.940 97.888 4.517 .28.134 302.48.371 50.181 4.166 167.36.43.8487 6.832 2.338 9.852 2.27.85.316 138.28.577 128.70.217 46.341 7.33.211 12.858 17.811 137.68.710 2.468 121.784 132.315 67.32.16.717 209.483 40.

42.000 36.22.000.631 74.85.340 94.96.99.062 Total Equity & Liabilities 206.926 92.75.660 3.340 Year 2007 1.850 37.109 156.480 715 25.03.000.342 10.000.250 20.000 786.10.94.000 786.523 137.000 95.879 Year 2005 1.57.050 158.50.57.568 14.714 5.93.517 .975 Year 2006 1.554 985.20.879 62.700 Current Liabilities Trade and other payables Advances from customer Dealers Accrued mark up Short term running finance Liabilities against asset subject to finance lease 532.79.869 22.48.71.925 98.805 44.26.000 786.48.529 673 27.000.10.14.64.911 66.000 54.89.000.22.735 27.805 Liabilities Non current liabilities 503.468 121.750 76.975 80.972 105 28.000 786.149 120.92.973 Year 2008 1.138 210.Page 8 Liabilities & Equity Share capital Issued subscribed and paid up capital Reserves Total equity Year 2009 1.000 86.650 39.84.65.017 45.43.988 59.973 102.000 72.000 786.035 54.227 56.36.

01.843 375.S 17.72.226 346.88.212 19.945 40.21.G.653 571.57.356 38.711 12.464 23.370 43.62 29.47.632 44.830 306.313 26.06.P.607 449.A.48.614 1345473 Other Operating Income 727080 27.15 34.02.73.430 242.637 786.50.T 26540 2046013 660911 1385102 35.657 30.256 321.487 487.20.00.494 31.T Taxation E.306 348.94.84.917 276.36.373 390.P 37864604 35540418 2324186 414.S G.78.16.866 229.34.47.746 277.481 14.0845 72.093 23.957 818.722 126.I.44.83.70 18.535 310.471 2.905 41.221 186.Page 9 Income Statement INDUS MOTOR COMPANY LIMITED 2005-2009 Year 2009 Year 2008 Year 2007 Year 2006 Year 2005 Net Sales C.193 265.93 33.876 956.65.284 784.780 27.760 35.889 42.75.302 775.288 36.304 Less: 469985 Distribution Cost Admin exp 352249 822234 1501952 Other Operating exp 156479 297.034 248.97.777 14.B.986 352.456 647.311 14.510 10.957 21.050 94.45.373 35.89 .178 294.99.443 2072553 Finance Cost E.594 509.23.40.646 E.63.24.629 404.48.61.701 41.834 33.29.856 27.41.

78 but In FY06 current assets were Rs. loans & advances and other receivables as there had been no debtors for the company as its sales are on cash basis. But in 2009 current assets were 16.13.000 15.000 10.715 2008 9. 665(million).14. . In FY2005 Current assets were 111.Page 10 FINANCIAL STATEMENT TREND ANALYSIS:1) Current Assets: Current assets of the Indus Motor Company Limited are mainly comprised of the inventory.536 2006 14. finance leases and advances from customers and dealers.096 2005 11.665 2007 13. 536(million) and kept decreasing and in FY08 these were Rs. 096 (million) which decreased in FY07 to Rs.000 5. The company was facing cash deficits and therefore accelerated its recovery of receivables but still the company seems to be in liquidity problems.715 which is higher than any other year and it shows that company is now in strong position.000 0 2) Current Liabilities:Current liabilities of Indus Motor Company limited mainly include trade and other payables.9. The reason is that other receivables have decreased as previous outstanding debts have been recovered and also the cash and bank balance has reduced. Years Current Assets (PKR) 2009 16. cash.178 Current Assets 20.

. which are at a level of Rs.411(million) in FY07.248(million) in FY06. 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. The company¶s sales in FY 05 was 27. The main cause of this reduction is that the advances from customers.601 and in FY 06 were Rs.411 2006 9. 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.3. 35. 39. In the reporting year 2008 liabilities were Rs.865. dealers and accrued mark-up. 41. FY 07 showed an increase in sales up to 19% compared to FY06.061 in FY07.664 in 2005 and then increase the next year Rs.664 Current Liabilities 3 3 2 2 1 1 0 3) Sale Revenue:Sales of Indus Motor Company Limited shows an increasing form 2005 to 2008 but in 2009 decreases with a great margin. 9. Years Current Liabilities (PKR) 2009 9.248 2005 7. But which decreased to Rs.885 2008 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. .424 in FY08. 7. 9.780 2007 7. 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 FY07.237(million) and increased to Rs. But in 2009 it decreases and sales was 37.Page 11 Current liabilities were 7.885 (Millions) and again company try to maintain its shares. But in 2009 it increased to Rs.

201 in FY08. Sales of Honda Atlas¶s cars were 28.527.649 (millions). Indus Motor has reduced its Gross Profit margin by about 2% in FY08 and is not much different from previous years. in FY07 these were 35. 2.762 cars and 33.Page 12 The car financing became more expensive due to increase of 200bps in discount rate during FY08. The increase relates to the increased sales and decreased finance charges in FY07. in FY07 cars sold were 18. 2. (millions) 2009 37. Number of Cars sold by Indus Motor in FY06 was 30. As a result. And decrease in profit continues to 2009 years and in 2009 EBIT was 2. The distribution cost in FY08 has reduced as compared to previous year.291(million).865 2008 41. Years Sales in Rs. Very next year after the successful year.746(million) in FY07. but administrative expenses have increased. In FY 2005 2.361 and 14. which increased to a level of Rs. the profits reduced and are Rs. .134 in FY06. Where as Honda Atlas¶s cars sold in these years show a continuous decreasing trend.237 2005 27. The reported finance charges have dropped by about 93% in FY08 compared to FY07 but Indus Motor still has decreased profits.424 2007 39.640 in FY08.046.061 2006 35. 2.601 Sales Revenue 3 3 2 2 1 1 0 4) Profit after Interest and Tax: Form 2005 to 2007 EBIT increases But last two years EBIT decrease Consistently. 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. 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.303 and In FY06 profit was Rs.

Honda Atlas Years Profit after tax Rs. Annual Report 08. Whereas comparing these results with Honda Atlas. its results are not as promising as of Indus Motor. Honda Atlas had a profit figure of Rs. 265(million) in FY07 and the next year. During the period under review.291 2007 2. it managed to have a positive figure but still profits were too low.0% to US $636 per ton (average price) from US $574 per ton (average price) in 9mths'07. In the last three years. 705(million) in FY06 which decreased to a loss of Rs. 75(million).Page 13 Major reasons behind the decline were low sales volume. (million) 2009 2.I. which negatively impacted the company's bottom line. appreciating Japanese yen against the Pak rupee and higher steel prices.B. world steel prices grew 11. and are only Rs.649 2005 2.T 3 3 2 2 1 1 0 .746 2006 2.046 2008 2.303 E. a competitor. FY08.

69 which was a negative and the main cause of reduction in current ratio was decrease in Sales volume.07 rising to 1. While the Acid test ratio in FY 06. As Indus Motor is a manufacturing concern so it has more of inventories in its stock. A high ratio indicates a good probability the enterprise can retire current debts.55 which show Indus Motor·s strong position. and current liabilities reduced mainly because of lower advances from customers and dealers which have reduced by about 85% since FY06. without selling its inventory. 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.44 in FY07 and further rising to 1. But in 2009 it current ratio was 1. In FY08 the figure has improved more and is 2.Page 14 Ratio Analysis:SHORT. In FY 05 the ratio was 1. Reason for reduction in current assets is mainly because of other receivables of Indus Motor which have reduced by more than 94% since FY06.49 but in FY07 the ratio increases to 1. The acid-test ratio is far more strenuous than the current ratio. The Current assets have reduced by about 31% and current liabilities have reduced by about 60% in FY08 as compared to FY06. 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.1 . A ratio of 2. If we compared Indus with Honda than Indus is in a strong position because in FY 09 current ratio of Honda was only 1.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. 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. the ratio was 1.46 and In FY 06 the ratio was 1. A stringent test that indicates if a firm has enough short-term assets to cover its immediate liabilities. primarily because the current ratio allows for the inclusion of inventory assets.82 times which is a well managed position.85 in FY08.0 or higher is a comfortable financial position for most enterprises.

68 2008 1.44 Acid Test Ratio 8 6 4 2 0 .44 2006 1.55 2007 1.46 Current ratio 3 3 2 2 1 1 0 Years Acid Test Ratio (Times) 2009 1.82 2006 1.Page 15 Years Current Ratio (times) 2009 1.69 2008 2.85 2007 1.07 2005 1.49 2005 1.

The reason was high inflation and currency fluctuation.77% when Pakistan economy has witnessed huge demand for cars mainly due to easy leasing terms offered by the banks in Pakistan. 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. in which margin was about 4%. . In FY 07 Gross profit reached to 11. In FY07 all operating expenses i. In FY08 GP margin was low. Indus Motor Company Limited had net profit ratio of 3.66%. Inflation in FY06 was 7.5% against Japanese yen to 1¥ = Rs 0.e.14%).89 which increased to 10. Inflation also had some affects on it.66% in FY09 which was the lowest in the four years as it was above 7% in last two reported financial years. administration. causing the input cost to increase beyond expectation.517 (average price) in the same period last year. distribution and others increased by about 16% compared to previous year. A similar picture exhibits Honda Atlas. Net profit is taken before tax and other indirect costs.P margin is due to unstable environment of the country and due to increase in terrorism activities. In FY 2009 G. decrease was due to fall in Car·s Demand in Pakistan mainly because of Interest rate increase and strict revised leasing policies of Banks. One of the most important factor was that the company·s other income has decreased by about 18%. The main reason of decrease the G. In FY09 Company made a profit of 3. finance cost decreased by about 65% and the Taxation Charges had increased by about 4%. a competitor.Page 16 PROFIT MARGINS Gross Profit Margin and Net Profit Margin:Indus Motor does not show a drastic fluctuation in Gross Profit Margin. Pak rupee depreciated 8.27 in FY07. The net profit ratio is net profit expressed as a percentage of total sales. Whereas Honda Atlas had significant affect on its Gross Profit Margin and even in FY07 it decreased to about 1%.36%.561 (average price) in 9mths'08 from 1¥ =Rs 0. In FY 06. the gross profit margin was 11. compared to FY06 and FY08.P decrease to its minimum level than before (6.

the car financing facilities offered by the banks were restricted and made stringent.75. 1.55 and .77 2005 9. Also.02 2006 7.51 2005 5. tightening of monetary policy and resulting interest rates also hit the demand for cars along with raising the finance costs for the companies.66 2008 2007 7.51 for the year ending 06.8 9. are the falling demand of cars.29 G.53 .14 2008 2007 11. after they were hit by huge losses in their car financing portfolios. Thus.38 5. Banks became more prudent. (especially decline in purchasing power of the middleincome group of the population) due to high inflation. Years Gross Profit Margins % 2009 6.36 2006 11.P Margin 8 7 6 5 4 3 2 1 0 Years Net Profit Margins% 2009 3. 07 and 08 respectively? The reasons for lower profitability of Indus Motor and the auto sector in general.Page 17 Which has continuously decreasing profit margins as the net profit ratios of Honda Atlas are 2.

27% in FY08.32% falling to 34.P Margin 8 6 4 2 0 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.52% clearly showing the efficient usage of capital resources. 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%. otherwise any increase in borrowings will reduce shareholders' earnings. 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 FY07.13% in FY07 and even further dropping to 24. FY06 showed outstanding figures of return earned against the capital employed which reached up to 41. Indus Motor Company Limited again has a decreasing trend in the returns with respect to the shareholder·s equity. ROCE should normally be higher than the rate that the company borrows at. And this reduction in ROCE and ROE continue in FY 09. In FY06 it was 42.Page 18 N. 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. 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. . In FY07 a year of disappointment. In other words the ROCE ratio is an indicator of how well a company is utilizing capital to generate revenue. Many analysts consider ROE the single most important financial ratio applying to stockholders and the best measure of performance by a firm's management.

O.17 24.26 2006 41.45 2008 2007 34.E 50 40 30 20 10 0 .98 Formula:. Years Return on Capital Employed 2009 12.E 14 12 10 8 6 4 2 0 Years Return on Equity % 2009 13.32%.83% while improved marginally in FY08 at a level of 2. and worsened in the next year i.C.52 2005 32.e.O.07%.Page 19 Honda Atlas·s ROE figure is not as good as Indus Motor·s. In FY06 ROE is 26.13 2006 42.82 2008 2007 33.32 2005 33. FY07 and is -10.77 22.Net Profit (EAT) / Capital Employed (Equity + Non current liabilities) R.27 R.

Whereas Honda Atlas. or all inventory combined. finished products.Page 20 WORKING CAPITAL TURNOVER PERIODS 1) Debtors Collection Period:Indus Motor maintains a very low amount of trade debtors and is well managed. it does not maintain any trade debtors. Years Debtors Collection Period (Days) 2009 10 2008 2007 6 2006 6 2005 5 9 Debtors Collection Period 14 12 10 8 6 4 2 0 2) Inventory Turnover Period: Inventory turnover reflects how frequently a company flushes inventory from its system within a given financial reporting period. In FY06 debtors collection period was only 6 days and remained same next year i. FY07 but in FY08 it increased and is 9 days and in FY 09 increased by 1 day. .e. work in progress (WIP). the direct competitor. The measure can be computed for any type of inventory³materials and supplies used in manufacturing or service delivery.

Years Market Value Per Share (PKR) 2009 192. FY07 and FY08 respectively.00 2005 180.03 And like others. In FY07 it had a tremendous increase in the value.Page 21 The figures are better as compared to the competitors despite Honda Atlas has an improved since FY06 to FY08. but not as efficient like Indus Motor which has reduced its days from 47 days in FY06 to only 26 days in FY08. which is 62. 59 and 42.5/share. and its share price too declined in the reporting FY08. 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. But in FY 09 it drops to 192. in FY06.50 2006 191. Toyota was also not safe from the effects of the policies of import. and dropped down to Rs. The company seems to pursue a policy of reducing its inventory level and to bring it in line with the sale demand. Years Inventory turnover Period (Days) 2009 49 2008 2007 30 2006 47 2005 38 26 Average age of Inventory 14 12 10 8 6 4 2 0 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.03 2008 200.05 .05.200. at level of Rs. The company has improved its position by reducing the inventory turnover period continuously.05 2007 305.305.

7 as compared Honda Atlas.62 but still higher than Honda.88.Page 22 15 10 5 0 Market Value per Share 4) Earning Per Share (EPS):The portion of a company's profit allocated to each outstanding share of common stock.89 29. whereas Honda Atlas has a very low EPS of 0.93 2006 33. Earnings per share serve as an indicator of a company's profitability. 29.15 Years Earnings Per Share (PKR) 2009 17. a competitor. EPS of Indus Motor has changed over the period in the same fashion as its profitability.15. In FY06 EPS was PKR 33. In the year 2008 Indus Motor reported a low EPS of 29.7 2005 18. EPS of PKR 9.55 in FY08.62 2008 2007 34. And in FY 09 EPS was 17.15 Market Value per Share 15 10 5 0 .

Indus Motor maintains a dividend policy of dividend payout between 30 to 40%. In FY07 it increased to Rs.50 2007 37.50 in FY08 because of relatively low earning per share but the dividend payout ratio remained in the same range.00 2006 35. The Dividend per share in FY08 was Rs.12.61% dividend Payout.00 per share.5 8.03 10.10.61 12.13.21 13.00 10. Formula:.Dividend payout ratio = Dividend per share / Market price per share Years Dividend Pay Out Ratio (%) Dividend Per Share (PKR) 2009 33. Due to drop in Earning per share and Dividend per share in FY08 and FY 09.00 2005 30.5 Dividend Payout Ratio (%) 15 10 5 0 15 10 5 0 Dividend Per Share .35 2008 36.Page 23 5) Dividend per share and Dividend Pay out Ratio:- The dividends paid by the company for the FY06 were Rs. the market value of Indus Motor has also fallen.00 per share represented 35.

The performance of the car assemblers remained lackluster owing to the economic meltdown in the country. high inflation and fall in overall demand of cars due to recession in economy of Pakistan which has affected the company·s business. In the FY08.441 units sold in FY08.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. the car assemblers passed the increase of cost to the consumers. gearing. increased the cost of production and hampered the profitability of the auto companies. It is worth mentioning that the significant reasons for these adverse movements were external factors like adverse foreign exchange rate movements. Also. liquidity. The increased P/E ratio shows that there are potential of increased earnings in the future and exhibits strong investor confidence. The increase in car prices weakened the demand for cars. Thus. and additional regulatory duty of 50% on high-end vehicles. which contribute 60% to the total auto sales. Sales went down mainly in the 800cc and 1000cc (economy car segment) categories. except for sale revenue all the other performance indicators including profitability. Gearing conditions over three years is showing an increasing trend and no new share issue has been witnessed. The liquidity position especially the liquid cash availability is to be ensured by the company as currently it does not seem sufficient and adequate. 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 imposition of 5% Federal Excise Duty on cars. There are some problems that the company needs to address with its adequate decision making. Other macroeconomic factors. imposition of Withholding Tax at the registration stage. such as depreciation of Pak rupee against the US dollar and Japanese yen. 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. . 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. In the wake of rising steel prices. 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. high interest rates and reduction in car financing facility offered by banks further depressed the demand for cars. sale volume. working capital and market capitalization exhibited a low as compared to previous reported financial years. higher steel prices. the industry car sales went down to only 147. above 850cc. 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. appreciation of yen against the rupee and imposition of 5% FED in the budget.

On their part. 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. the elimination of 5% FED in the Budget 2009-10 will provide a relief to the auto sector. 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. However. However. 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 . Also.710. gas and petroleum and particularly heavy taxation for the sharp price increases. gross margins can be expected to improve as future results may depict positive impact of lower steel prices and stabilization of the exchange rate. . This company managed to widen its market share largely due to the successful launch of new model of Corolla. Indus and PSMC posted growth of 8% and 7% respectively.000 units which currently in FY08 is 164. Indus Motor Company performed better than the other companies in the auto sector and its market share was 26% in FY08.Page 25 The market share of Pak Suzuki declined to 62% in FY08. Declining interest rate in the economy is a promising sign for the future sales of the sector. the manufacturers have blamed numerous devaluation and sharp increases in the cost of inputs such as power. 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%. The auto industry is currently faced with a number of problems. 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. in the future.the fourth consecutive growth on monthly basis. 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. This would reduce the price of cars and thus help raise demand to a certain extent. Indus Motor and Honda Atlas gained in terms of market share. Honda Atlas's market share increased to 7% in FY08. Dewan Motor's market share also decreased to 5% in FY08.

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