Hinopak Motors' Profits Halve As Margins Crumble Despite Debt Cuts

Hinopak Motors Profit plunged nearly 50 percent during the quarter ended June 30 despite aggressive debt reduction, highlighting how shrinking margins and weaker sales continued to weigh on the truck manufacturer's earnings.

KARACHI: Something odd shows up in Hinopak Motors' latest numbers. The company shrank its debt pile by two-thirds and still watched profit collapse by half. That's the story buried in the filing the truckmaker sent to the Pakistan Stock Exchange on Tuesday, covering the quarter that closed June 30.

Focus Pakistan learnt that the headline figure isn't pretty. After-tax profit came in at Rs 209.69 million, down from Rs 416.82 million a year ago. Revenue only slipped 17.3 percent, to Rs 3.28 billion so where did the rest of the profit go? Mostly into cost of sales, which refused to come down at the same clip as revenue did, dragging gross profit to Rs 544.44 million from Rs 845.56 million. Add in distribution costs creeping up to Rs 126.64 million and administration expenses ticking to Rs 126.93 million, and the squeeze becomes obvious. Per-share earnings tell the same blunt story: Rs 8.45 now versus Rs 16.81 then.

No dividend. No bonus shares either. The board, which met at the company's SITE plant in Karachi on July 28, signed off on the unaudited numbers and left shareholders with nothing this time around.

Here's the part worth dwelling on, though. While the income statement bled, the balance sheet got a scrub. Short-term borrowings, which stood at Rs 2.53 billion in March, are down to Rs 789.25 million a cut of almost 69 percent, with Rs 303.52 million of that paid off in this quarter alone. Finance costs followed suit, nearly halving to Rs 71.34 million.

Also Read: Hinopak Profit Jumps 234%, Board Approves 109% Cash Dividend

And the cash position flipped entirely. A year ago, operations were bleeding Rs 1.44 billion in cash. This quarter, they threw off Rs 1.53 billion instead a swing of almost Rs 3 billion. Some of that came from running inventories down to Rs 4.28 billion from Rs 5.49 billion; some came from chasing receivables harder, which fell to Rs 235.37 million from Rs 384.79 million.

The tradeoffs show up everywhere else too. Total assets are lighter, Rs 9.85 billion against Rs 11.57 billion in March, yet equity actually grew, to Rs 6.27 billion, on retained profits. Cash in the bank thinned out badly just Rs 18.99 million left, down from Rs 252.35 million though the Rs 250 million parked in short-term investments hasn't moved.

Net it all out cash against short-term debt and Hinopak sits at negative Rs 269.67 million. Bad on paper, but nowhere near last year's negative Rs 1.87 billion.