Public transport: Pak Suzuki hopes to drive up profits

Newly-announced taxi scheme could lift earnings by 13% to 20%.

KARACHI: The announcement of the Punjab government to allocate a big sum of Rs25 billion for the taxi scheme in 2015 budget is going to help improve the profitability of Pak Suzuki – the largest car maker with over 50% market share in Pakistan, analysts said.

“Although details of the short-listed manufacturers are yet to be announced for the scheme, we see high probability of Pak Suzuki’s (PSMC) selection,” JS Research reported

“The leading local car manufacturer will provide vans/pickups which will be used as taxi in rural areas for mass transportation,” Sherman Securities said on Monday. ”If short listed, the yellow cab scheme can lift PSMC’s expected earnings in year 2014 and 2015 by 13% to 20%, as earnings impact is likely to be spread over its Jan-Dec  reporting period. On a standalone basis, our rough estimates suggest an annualized earnings impact of Rs10 per share for the company.

The contract of taxis may be given to Pak Suzuki Motors (PSMC) and Al-Haj FAW (local assembler in partnership with Chinese FAW group), as both are capable of producing small pickup-vans. Though the Chinese group is capable of producing vehicles like FAW X-PV and FAW-Carrier, which are slightly cheaper than the vehicles produced by PSMC, we believe PSMC remains a major beneficiary given its huge capacity and long association with the Punjab government in earlier schemes.

PSMC has capacity to produce 3,000 units per month each of Ravi and Bolan on three shifts. The company sold 14,000 units of Bolan and 11,700 units of Ravi in calendar year 2013 (CY13). The company also produces 150,000 units (on double shift basis) and sold 76,000 cars/light commercial vehicles (LCVs) during CY13 compared to 96,000 cars/LCVs during 2012.

“Earlier in 2012, the Punjab government, under its taxi scheme, had given an order of 20,000 cabs to PSMC. The cabs produced under the scheme had 60% share (12,000 units) of Suzuki Mehran and 40% (8,000 units) of Suzuki Bolan. Though this time, the government has quoted over 50,000 cabs to be distributed; however, based on current market prices and same proportion of Mehran and Bolan (60%:40%), we estimate 38,000 to 40,000 cabs would be distributed to fully utilize the Rs25 billion allocated for the project”,  BMA capital reported on Monday.

It is expected that all vehicles will be distributed during within three years.

Published in The Express Tribune, June 17^th, 2014.

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