Auto firms sink into red for falling taka, vehicle demand

Soaring dollar, increased production costs and the falling demand for vehicles have begun severely biting into the profitability of the automobile companies, revealed listed firms' latest quarterly statements.

Runner Automobiles, the motorcycle manufacturing pioneer of the country, surrendered its bottom line to the turbulent economic situation in the July-September quarter as both of its motorcycle and commercial vehicle businesses incurred losses simultaneously for the first time.

The company posted Tk0.81 in losses per share against the net profit per share of Tk0.53 for the same quarter last year.

Ifad Autos Ltd, an assembler, bodybuilder and distributor of Ashok Leyland buses and trucks, sold more units, mostly passenger commercial vehicles, for the south-western routes that have been newly connected by the Padma Bridge at the end of June.

According to Ifad Auto Director Taskeen Ahmed, due to its business edge and a lion's share in the bus market, the company did secure a higher quarterly revenue and operating profit but incurred losses due to high foreign exchange rates. 

The company opened a letter of credit (LC) for its vehicle parts imports at Tk91.79 per dollar but had to settle the payment at a rate of Tk103.5 on average.

Due to the over Tk41 crore foreign currency exchange losses, the company incurred a net loss of Tk20.6 crore in the July-September quarter, while in the same period last year it made a net profit of Tk10.4 crore.

Runner, on the other hand, does not sell buses and the cargo segment's slowdown hit its commercial vehicle sales more. 

Runner Chief Financial Officer (CFO) Shanat Datta estimates that the last three months' slowdown resulted in at least one-third year-to-date decline in truck sales this year.

Sharing a similar estimate of truck sales fall this year, Ahmed said truck owners are earning less now due to their fuel cost hike amid declining cargo trips nowadays.

Explaining the tough time for the automobile industry, Datta said, "The falling taka alone has increased the cost of raw material by more than one-fifth this year and companies had to increase prices accordingly."

"Unit prices increased in a season when buyers are stressed by the fuel price hike and high inflation," Runner CFO said, adding, "Customers are deferring their vehicle purchases nowadays, being it in two-wheeler or commercial vehicles."

The company, manufacturing or assembling nearly three dozen two-wheeler models under Runner, Aprialia, Vespa, UM, and LML brands, earned Tk80 crore revenue in the July-September quarter, which was over Tk95 crore over the same period last year, despite the fact that 41 days of the corresponding quarter last year were lost into the lockdowns.

The motorcycle industry's intelligence data showed, following a record sale over the January-July period, the two-wheeler industry saw three consecutive worst months in the last five years as inflation-squeezed middle-class consumers are shying away.

Unlike several recent quarters when commercial vehicle profits helped Runner make a consolidated profit, Runner Motors, the Eicher truck-selling subsidiary of Runner Automobiles, suffered sales drop and incurred losses in the July-September period.

On top of everything, the import of automobile parts and the raw material is subject to higher finance costs as the LC margin shot much higher, said Datta.

Having consolidated quarterly revenue declining to Tk230 crore from Tk260 crore a year ago, the two units of Runner together incurred Tk8.9 crore losses, while its net profit was Tk10.4 crore a year ago.

To cope with the situation, Runner is focusing on cost rationalisation, price adjustments, and temporarily reducing imports unless it is a must for high profitability.

Both Ahmed and Datta said their companies are not eying a reduction in manpower cost, instead, they are exploring other ways to spend less until the business environment restores to normal.

ACI Ltd subsidiary ACI Motors Ltd, the manufacturer of Yamaha Motorcycle and the distributor of Foton commercial vehicles and a wide range of agro machinery and construction equipment, is trying to spend less on sales incentives and deferring many non-essential spending to cope with the cost hike, according to its Executive Director Subrata Ranjan Das.

He recently told The Business Standard that the costs have gone up by nearly 30% this year while for the sake of sales retention the company passed around half of the added costs on to the customers during their hard times.

Against a quarterly revenue growth to Tk611 crore from Tk376 crore a year ago, ACI Motors' pre-tax profits grew to Tk52 crore from Tk46 crore, according to its parent company's latest financial report.

Aftab Automobiles Ltd, the bodybuilder of Japanese Hino buses was incurring losses in its two-wheeler unit and closed its motorcycle operations recently to get the deployed assets free and it managed to avert quarterly losses by a thin margin.