Morning Briefing for December 11, 2013 – Standard Capital

Karachi, December 11, 2013 (PPI-OT): Honda Atlas Cars to double production capacity

Express Tribune reported that management of HCAR has unveiled the plan to double production capacity in coming years.

According to Standard Capital, HCAR, is a joint venture of Honda Motor Company Limited Japan and Atlas Group of Companies, currently has a total production capacity of 50,000 units per year. The chairman wants this figure to be doubled i.e. 100,000 units per year for which the company had already purchased a piece of land adjacent to their factory near Lahore. HCAR plant is situated at Multan Road at a beautiful location which is near other famous companies. The Chairman of the company sees growing demand of cars wherein he also considers import of recondition cars as a threat. Some of the key points he highlighted include quality of human resource at his disposal. However, he also sees depreciating of Rupee against JPY as a great economic challenge. The company has also suffered a lot on this account during current fiscal since lot of profitability has been eroded during the period.

Civic & City variants to remain in demand
Since its inauguration, HCAR has produced a total of 227,476 units for its Honda Civic and Honda City models. In June 2006, the company introduced Honda Civic Reborn, a Euro compliance car, and manufactured 34,380 units before the switch to another model in August 2012. In December 2008, the latest Honda Civic was introduced and till the date company has produced 45,479 units of this model.

Current scenario as per PAMA
The latest Honda Civic model hit the market in September 2012 and till date 13,627 units have been produced. During 4MFY14 company produced 3,578 units of Honda Civic and 4,744 units of Honda City were produced. And 3,492 units of Civic and 4,532 units of City were sold during 4MFY14.

Valuation – Sector development is main trigger
HCAR yields FY14 PE of 6.8x (based on Standard Capital’s expected EPS of Rs 6.5 for FY14). Among peers PSMC is yielding 5.8x and INDU is also yielding FY14 PE of 7.6x. The stakeholders are in talks with agile Engineering Development Board (EDB) and also new policies in auto would be in the offing – Standard Capital sees challenges ahead for local assemblers. Prime Minister has also requested Japanese Toyota Motors Corporation (whose variants are assembled by House of Habib in Pakistan i.e. INDU) to go for CBU exports from Pakistan which Standard Capital sees an area where HCAR could thrive.

Standard Capital recommends HOLD in HCAR, where Standard Capital sees sector wide development could herald growth for the company which has undertaken to expand.