Project Objectives and Overall Research Approach

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Introduction
This Research and Analysis report is based on an analysis of Indus Motors Company (IMC) over a
period of three years. IMC is engaged in sole distributorship of Toyota and Daihatsu Motor Company
Ltds vehicles in Pakistan through its dealership network.

Reasons for Choosing the Topic and the Company:

Selecting one project out of twenty available projects by Oxford Brookes University (OBU) was a
difficult task. After in-depth analysis of all the available options, I finally selected .The business and
financial performance of an organization over a three years period as I used to feel lot more
comfortable in this area during my studies and this was suggested by my mentor as well. It was totally
in correlation with my studies and during our studies were supposed to excel at accounting techniques
like Ratio Analysis and business techniques like Porters Five Forces Analysis and SWOT analysis.
Due to a personal interest in automobiles, I choose Automobile Sector of Pakistan which is considered
as mother of all industries of Pakistan. The rise in automobile production has resulted from an
increased domestic demand and generating over 150,000 direct employment opportunities.
For the sake of RAP I selected Indus Motor Company limited (IMC). IMC is a joint venture between the
House of Habib, Toyota Motor Corporation Japan (TMC) , and Toyota Tsusho Corporation Japan (TTC)
for assembling, progressive manufacturing and marketing of Toyota vehicles in Pakistan since July 01,
1990.
(www.toyota-indus.com)
(Accessed 10th October 2010)

Project Objectives
Each type of analysis has a purpose or use that determines the different relationships emphasized in
that analysis.
(Weston & Copeland, 1992,pp 178)
The objective of this project is to assess the business and financial performance of IMC over a period
of three years ending 30th June 2010 and comparison of its performance with one of its competitors,
Atlas Honda Limited.
The aims and objectives of this research and analysis project are to
To analyze the company and the sector in which it exists.
To evaluate the performance of the company in terms of:
Profitability; to assess a firms ability to create economic value in excess of value expended, to grow,
remain solvent and repay debt.
To judge the liquidity of the company and evaluate the financial risk.
To assess the debt and capital structure of the company by calculating debt equity ratios and interest

cover.
To carry out the investors analysis in terms of earning per share.
To Carry out SWOT analysis.
To study the companys market position by using porters five forces model.
To conclude the current situation and prospects of companys business and financial position and to
suggest the improvements
(http://articles.bplans.com)
(Accessed 7th April 2010)

Research Question
In order to ensure my project has the appropriate structure and that I have clear objectives, I
highlighted the same questions Shane Johnson (2006) mentioned in his famous article how not to
rap myself which states:
What is my research question/title of my project?
What is the underlying theory?
What methods will be used to gather information about the topic?
How will the analysis be carried out?
What conclusions can be drawn from the analysis?
What are the key elements that I should present to my mentor?
What have I learned from the process?
(www.project-as-practice.org)
(Assessed 2nd April 2010)

Overall Research Approach

I started my project by reading all the information available on the website of ACCA about the OBU
degree. After carefully thinking over the available list of projects and consulting with my mentor, I
selected The business and financial performance of an organization over a three year period.
I started working on the project by setting objectives of the project and by identifying which techniques
to be used and I consulted many course and referencing books before start working on the project.
Then I started working on the organization by collecting all the relevant data useful for the project. I
used secondary sources like newspapers, articles, internet, anylists reports, and annual reports of IMC
and the competitor HAL, etc to get the required information. I had to assure reliability of the source of
information throughout the information collection process and details of sources were saved by me for
the referencing purpose.
Meanwhile I conducted three formal meetings with my mentor during working on my RAP. In each
meeting I used to show him my research and working till date. My mentor also guided me on various
techniques and also referred to few books and resources that were relevant to my research.
After completing my project, I had to give my mentor a fifteen minutes presentation on the project, and

after his final approval I finally submitted it to OBU.

Information gathering and Accounting/Business techniques used

2.1 Sources of Information and Methods used to collect it
I had to collect data mainly from secondary sources to undertake the project..

Secondary Data
Secondary data is data which has been collected by individuals or agencies for purposes other than
those of our particular research study.
Source (http://www.fao.org)
(Accessed 5th October 2010)
I started looking for secondary data from news papers, Companies profile from website, business
magazines and journals for competitors and industry reports and industry position of main competitor
HAL. Annual Reports were the most reliable source for my RAP and I used audited financial
statements for calculating the key ratios relevant to my project and also extract relevant information
from annual report to analyze the key strengths and weaknesses of the company.
Internet search engines helped me a lot to provide me most relevant and easily accessible information
in a timely manner. Information about the overall economic condition of the country and the sector of
the company was easily available and was very useful. Companys official website was also very
helpful to get the latest authentic information.
Some of Analyst Reports with other hard form materials like Business Recorder, daily newspapers etc
were also reviewed to benefit from their findings and recommendations.
I also used BPP and FTC study material student accountant and refer other management books.

Limitations of Information gathering

The major limitation about gathering data is that 100% accuracy cannot be guaranteed and there is
always a small chance that the source is not reliable and the information gathered is inaccurate.

Ethical Issues during Information gathering

While dealing with all the information to conduct the RAP I was supposed to strictly follow ACCAs code
of ethics.
During the research I came across few ethical issues which had to be addressed
Research participants must be fully informed about the procedures and risks involved in research and
must give their consent to participate; so I had to gain the permission of the people who I was studying
to conduct research involving them. Ethical standards also require that researchers not put participants
in a situation where they might be at risk of harm as a result of their participation thus I had to be
careful about using word sensitive or difficult questions during interviews.

Accounting/Business Techniques used and their Limitation

I used different business and accounting techniques to conduct my RAP. They are discussed below one
by one with their limitations

The Ratio Analysis

This is the measure of inter relationship between different sections of the financial statements which
then is compared with the budgeted or forecasted results, prior year results and or the Industrial
results.
Profitability
For shareholders, employees, creditors, investors, management.
Liquidity
For shareholders, management, suppliers, creditor and competitors.
Efficiency
For management, shareholders, creditors and competitors.
Gearing
For shareholders, lenders, creditor and potential investors.
Investment
For shareholders, potential investors, management.
P2-Corporate Reporting (International) BPP, 2005 pg.223

Limitations
Operating and accounting policies differ from firm to firm.
Ratios are static and do not consider future trends.
Many firms engaged in multiple lines of business so comparing ratios may be meaningless.
(Shim & Siegel,2007 pp.34)
Historical costs not suitable for decision making
Different accounting methods may be used by individual firms making up the industry sample.
Industry figures may be biased by few large firms within the sample.
Different capital structures and size
Strategic Business Planning and Development (3.5) FTC, 2005 pg.196.

The SWOT Analysis:

David (2002), describes SWOT as an analysis that can be used to measure an organization's
competencies and identify opportunities to taken by business management in the future. When looking
at your strengths, one should make a list of all the things that can be done well. Identify weaknesses as
part of SWOT analysis and one will be on the first step to success. One of the places to look for
opportunities is we to our competitors. Scanning market, industry or environment for unforeseen
threats is an important part of the SWOT process.

Limitations of SWOT

It can provide useful information about company but as with all toll analysis it will not supply strategic
decisions. Strengths and weaknesses may not be readily translated in to opportunities and sometimes
in SWOT analysis same factor can be identified as both strengths and weaknesses. A company may
also have difficulty identifying opportunities and opportunities
may be easy to overlook or may be identified long after they can be exploited. Similarly, a company
may have difficulty anticipating possible threats in order to effectively avoid them.
(Anthony Henry, 2008)
Source :( www.referenceforbusiness.com)
(Accessed 15th October 2010)

Porters Five Forces Analysis

The pure competition model does not present a viable tool to assess an industry. Porters Five Forces
model is a tool used by companies that deconstructs the industry structure in to five underlying
competitive forces.
Bargaining power of suppliers
Bargaining power of customers
Threat of new entrants
The threat of substitutes
Competitive rivalry
(Nemati & Barko, 2001 pp.29)
The conventional interpretation of Porters framework emphasized that rivalry and competition as the
key components of the strategy.
( Hax & wilde,2001 pp.42)
Source:(www.articles.bplans.com)
(Accessed 26th October 2010)

Limitations of Five Forces Model:

The model was designed for analyzing individual business strategies. It does not cope with synergies
and interdependencies within the portfolio of large corporations. The model does not address the
possibility that an industry could be attractive because certain companies are in it. Some people claim
that environments which are characterized by rapid, systemic and radical change require more flexible,
dynamic or emergent approaches to strategy formulation.
P3-Business Analysis: BPP 2008 pg.108

Business Analysis, Conclusion and Recommendations

3.1 Organisations History, Profile
Indus Motor Company (IMC) is a joint venture between the House of Habib , Toyota Motor Corporation
Japan (TMC) , and Toyota Tsusho Corporation Japan (TTC) for assembling, manufacturing and
marketing of Toyota vehicles in Pakistan since July 01, 1990. IMC had sole distributorship of Toyota

and Daihatsu Motor Company Ltd Vehicles in Pakistan through its dealership network.
IMC was incorporated in Pakistan as a (PLC) in December 1989 and started commercial production in
May 1993. The shares of company are quoted on the stock exchanges of Pakistan. Toyota Motor
Corporation and Toyota Tsusho Corporation have 25 % stake in the company equity. The majority of
shares owned by House of Habib an investment group of Pakistan.
IMC's manufacturing plants are located near Karachi which is industrial hub of Pakistan at Port Bin
Qasim.
Source:(www.toyota-indus.com)
(Accesses 30th October 2010)
Business Recorder 14th May, 2009

Products:
Companys plant in Pakistan is the only site throughout the world where both brands Toyota and
Daihatsu are being manufactured.IMC's Product line includes 6 variants of the newly introduced Toyota
Corolla, Toyota Hilux Single Cabin 4x2 and 4 versions of Daihatsu Cuore and newly imported vehicle
like Toyota Camry.
Source: (www.toyota-indus.com)
Source :( www.scribd.com)
(Accessed 20th October 2010)

The Sectors Overview

The Pakistani auto sector has played a significant role in the growth and development of the local
economy in terms of revenue generation, foreign exchange, human resource development and
technology transfer. Automobiles companies are growing along with industry and all the manufacturers
are putting hard efforts to increase their production capacity to meet consumers demands.Prodouction
was constant throughout 90s around 45000 but due to consistent policies and increasing power of
buyer industry boomed to over 120000 units/annum on just four years to 2003/04. According to the
statistics of 2006-07 there were 82 vehicle assemblers in the industry producing passenger cars, light
commercial vehicles, trucks, buses, tractors and 2/3 wheelers. Besides these there were over 600
players in the vendor industry. The total employment in the sector was over 192,000 with a total
investment of over Rs.98 billion. The auto industry has played a significant role in the large scale
manufacturing industry as it contributed $3.6 billion to the economy besides import substitution
resulting in annual foreign exchange savings of over $ 1 billion.
Source :(www.toyota-indus.com)
(Accessed 25th October 2010)

The Ratio Analysis:

The ratio analysis undertaken is based on the data collected from Annual Reports of Indus Motor
Company Limited for the financial year ended 30th June 2010, FY09 and FY08 and that of Honda Atlas
Cars (Pakistan) Limited for the finance year ended 31st march 2010,FY 09 and FY 08.

3.3.1 REVENUE GROWTH

The revenue in 2010 according to audited financial reports is 60.09 billion 58.7% higher than in 2009
where as it was 37.84 billion (8.6%) lower than in 2008.
(Appendix A)
This sharp increase in revenue is mainly due to healthy agricultural income from the farming
community and a little increase in auto finance sector.Govt of Pakistan more tightened policy of used
imported cars which gives a relief to the industry and the reduction of 5% in excise duty in federal
budget 2009/10 which passed to the customers immediately in the form of price reduction.
During the year the 2009/10 industry witnessed sharp rise in locally manufactured Passengers and
commercial vehicles which grew up to 43% to 141654 units as compared to 99310 units in 2008/09
which lead the production up to 37% higher as compare to 2008/09 and this is mainly because of the
Govt tightened policies for second hand imported vehicles.
(IMC Annual Report FY10)

Profitability Ratios:
A class of financial metrics that are used to judge the business capability to generate profits as
compare to its expenses and some other relevant costs within a specific period of time.
(Kaplan Study Text FR)
Shareholder, investors and other stakeholders like management have particularly focused on the
profitability of the organisation. These ratios have key importance between majority of stakeholders.

Gross Profit Ratio:

Gross profit known as the organisation paying additional expenses and savings for coming years also
known as gross margin.
(Kaplan Study Text FR)
In 2010 Gross margin increased to 27.86% as compare to FY09.One of the reasons of this increase is
that Pakistan economy showing a modest signs of recovery from recession and sharp increase in
demand of passenger and commercial vehicles. Although the gross sales 60 billion RS in FY10 sets all
time new records for the company but there is still decline in Gross Margin of (16.12%) when we
compare with FY08 where it was 9.3%.The main reasons behind that is the consistent pressure from
the Govt to reduce the selling prices, backdrop of rising interest rates,weakning Pak Rupee against
YEN, high inflationary conditions, and frequent disruptions to the business cause of shortage of power
and terrorist attacks, all of these factors effects the entire supply chain of the company and pushed the
manufacturing price to a new highest level and limited the companys ability to pass the increase to the
customers. These above mentioned reasons becomes the main reason of erosions of margins.
(IMC Annual Report 2010)
Honda Atlas gross profit margin had a negative growth in FY10 and reached at (1.5%) as compared to
1.2% and 4.3% in FY09 and FY08 respectively. Where as IMC gross profit had a growth of 28.56% as
compare to sharp decline of (34.4%) in FY09. As clear by above data, IMC performance regarding
gross profit was far better than its competitor.

(Appendix A)

Net Profit Margin:

Net profit margin measures how efficiently company has controlled its over head.
(Kaplan Study Text FR)
In highly challenging business environment,IMC has delivered satisfactory financial and operational
performance in FY10.The companys net profit increased to 3.44 billion a 54.05% increase as compare
to FY09 where it was 1.38 billion a (32.73%) decrease as compare to FY08.The main reasons behind
the sharp increase of 54.05% in net profit is due to an incremental increase of 16750 units of Corollas
sales volume through extensive marketing efforts. During the FY10 IMC outstandingly reduce their
fixed costs which increase the overall profitability despite weakening PAK Rupee and increased
manufacturing costs.
(IMC Annual Report 2010)
When we have a glance at net profit/loss of HAL, the net profit margin decrease to (5.4%) in FY10
where it was (2.8%) in FY09.HAL was having a positive growth of .5% in FY08.

Return on capital employed (ROCE):

ROCE is a measure that shows how efficiently assets of the company have been utilized to get return
from them. It is essentially the net assets of the company.
ROCE of IMC has moved in between 19 to 41% between FY08 TO FY10..This is mainly because of
massive increase of income of the company in FY10 along with tightened financial controls and
efficient and effective management of its various risks exposures.
On the other hand HAL utilisation of capital resources are not showing a good picture where ROCE in
FY10 had declined to (16.1%) as compare to (9.2%) in FY09 which is mainly because of operating loss
of (5.2 billion RS).ROCE was having a positive growth at 8% in FY08.
(IMC Annual Report FY10)

Liquidity Ratios
Liquidity ratios indicate an organisations ability to meet its short term financial obligations. Most
commonly evaluated ratios are current ratio and quick ratio calculated as follows.

Current Ratio:
.IMC was having a ratio high of 2.6 in (FY08).In( FY09) the current ratio fall drastically to 1.7 times.
There was a significant increase in current assets in FY09 specially in cash and bank balances which
rose from 9664 million to 16715 million and stock in trade from 2637 million to 4088 million but there
was a more than proportionate increase in current liabilities from 3779 million to 9884 million mainly
due to advances from customers a 628% increase as compare to FY08.The current ratio in FY10 did
not improve it remains at FY09 level 1.7 times because of proportionate increase in current assets and
current liabilities.
(IMC Annual Report FY10)
(Appendix A)
HAL current ratio was near to 1 in FY08 (.8 times ) which was not as bad because it remains close to
industry average of 1.It got worse in FY09 (.7 times) and (.6 times) in FY10 which is not a good
indicator for short term creditors.

(HAL Annual Reports FY10)

Quick ratio:
Quick ratio also known as acid test ratio eliminates the effect of inventory from the current ratio.
Quick ratio behaves the same way as to current ratio was 1.8:1 in (FYO8) before declining to (1.3:1) in
FY09 and remains constant at the same level in FY10.Although there is a sharp increase in current
liabilities in FY10 from 9884 million to 1422 million but the current assets on the other hand (excluding
inventory) moved almost the same proportion. Over all quick ratio is reasonable and company is in
sound position to meet its liabilities from most liquid resources for example cash and bank balances
and receivables.
(IMC Annual Reports FY10)
(Appendix A)
Quick ratio of HAL is very low as to industry average and remains constant for the past three years at
(0.20:1).This shows that HAL is not having enough liquid resources to pay its current liabilities even.
This low current ratio can be seen as the going concern problem for HAL in near future if this situation
sustain as it is.
(HAL Annual Reports FY10) (Appendix B)
Overall liquidity condition of IMC is far better than that of HAL.

Working Capital Ratios

Working capital ratios also known as efficiency ratios reduce the risk for lenders and enable
management to increase the productivity and business profits.
(Kaplan Study Text FR)

Days Accounts Receivable:

IMC receivables days decreased from 12 days in FY08 to 17 days in FY09 and decreased further to 10
days in FY10.This reduction in receivable days pointed towards the better effective and controlled
credit policy.
HAL on the other hand does not have trade debts at all in their balance sheet. This reflects their policy
to only deal in cash.

Days Accounts Payable:

Creditor turnover ratio shows how many days an organisation takes to pay its short term obligations
and how much it depends on trade credit for short term financing.
(Kaplan Study Text FR)
Creditor turned out cost of sales in FY10 is 39 days almost at the same level in FY09 but increased
when we compare with FY08 where it was 28 days. This improvement in payments pointed towards
the strong and healthy relationship with lenders and suppliers of raw material and longer the days
payable better for the cash flow.
(Appendix A)
HAL days accounts payable increased significantly 79 days to 124 days between FY08 and

FY10.Taking in account of HAL current year financial performance it is apparent that company is
struggling to pay its creditors and taking too long as compare to its main competitor IMC which is not a
good news for creditors and shareholders as well.
(Appendix B)

Debt/ Solvency Ratios

IMC is All-Equity Company with a zero long-term debt. This is a plus point in the current economic
situations as company doesnt have to pay fixed cost of interest on long term borrowings.
(IMC Annual Report FY 10)

Gearing Ratio:
As being all equity funded IMC manages to perform well in the crucial economic time and leave its
competitors behind.IMC does not have any long term debt included in their capital structure making
companys gearing ratio nil. On the other hand it has some disadvantages as well, the companys
capital structure is not at optimum level and company is ignoring cheap sources of finance (long term
debt) as to equity.
(Appendix A)
HAL is not all equity financed company and have long term debts on their balance sheet which results
in a high finance costs. These high finance costs pushed company from profits into losses.HAL gearing
level increased from 35% to 105% between FY08 and FY09 this increase was mainly due to increase
in debt which rose from 500 thousands to 1500 thousands. The ratio decline to 93% in FY10 but still
high as compare to industry norms.
(Appendix B)
This high gearing ratio could cause serious liquidity problems and could seen as a going concern threat
but the parent company Honda Motors Japan will continue to provide the liquidity support to HAL and
on that basis directors does not see any threat of this serious liquidity problems as a going concern
threat and company will carry on its operations in foreseeable future.
(HAL Annual Reports FY10)

Interest Cover Ratio:

Interest cover shows how many times, the profit before interest and tax covers interest amount. Its a
measure of how adequately company profit could cover up its interest payments on debts.
(Kaplan Study Text FM)
IMC results are very healthy and reached at the level 1284 time in FY08 mainly because of very low
finance charge of RS 2.7 million. It reduced drastically in FY09 from 1284 times to 78 times mainly
because of enormous increase in finance charge from 2.7 million to 26.5 million due to loss on
revaluation on foreign exchange contracts, sharp increase in mark up on advance from customers
which rise from 2.8 million from FY08 to 8.8 million in FY09 , and high interest rates. It is at its all time
high in FY10 at 1467 times. The main reasons behind that impressive increase are the best ever
financial performance of the company and reduction in finance cost through unrealised gain on
revaluation of foreign exchange contract of 96 million approximately which is quiet commendable as it
guarantees good rating of the company.
(Appendix A)

(IMC Annual Reports FY10)

Interest cover ratio at HAL was positive but very low at 1 time in FY08 before got worse in FY09 at (2)
times in (FY09) and remains constant at the same level in FY10. It shows that company is facing
difficulties to meet its long term financial obligations. These drastic results of profitability ratios of HAL
could threaten its credibility to raise more finance in near future.
(Appendix B) (HAL Annual Reports FY10)

Investor's Ratios:
The earnings per share (EPS) of a company indicates profit after tax attributable to equity shares of a
company.
(Kaplan Study Text FR)
The EPS of IMC was RS.29.15 in FY08 before dropping down to RS. 17.62 in FY09 due to fall in
earnings of the company because of recession in the overall automobile market globally and locally.
However (EPS) up by 138% from RS.17.62 to RS.41.9 due to highest ever car sales of 50.8k units as
compared to 34.1k units in FY09.IMC achieved 100% capacity utilization of its manufacturing plant
since it started its operations in FY10. This is due to increasing liquidity in rural areas and Govt
institutions that continued buying Corolla. These increased and recovered car sales remained one of
the main reasons behind such a high growth in earnings. Due to increased car sales,liquidity position
improved as company was having 16 billion cash on its balance sheet as compare to 9.7 billion in
FY09.Company invested this surplus cash in high yielding bank deposits which becomes the main
reason of significant increase in other income from RS.727 million to RS.1.25 billion in FY10 and
increased the overall earnings of the company.
(Appendix A)
Source:(www.dailytimes.com.pk)
Assessed:( 10th November 2010)
HALs EPS declined more in FY10 to (RS.5.97) from (RS.2.81) in FY09.This was due to loss after tax
of (RS.852.2 million) in FY10.The main reasons attributed to the loss are under utilisation of capacity
and depreciation of Pak Rupee as to Japanese Yen.HAL did increase the sale prices in line with the
market condition to overcome these problems but this was not enough for complete recovery.EPS was
RS.55 in FY08.
(Appendix B)
(HAL Annual Report FY10)

The SWOT Analysis:

SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses,
Opportunities, and Threats involved in IMC.

Strengths:
IMC is a joint venture between House Of Habib and Toyota Tusho Corporation LTD Japan. Toyota is a
global organization with representation of more than 170 countries . Toyota has becomes the industry
leader for maximizing profits through lean manufacturing system and waste reduction methods.IMC
has a very well experienced, talented and diversified management team and IMC has the strongest
dealership network within the country and during the FY10 a new 3s dealership was launched in

Lahore and Faisalabad to strengthen the business with this addition IMC dealership consists of 32
outlets throughout the country with market share of 34.5%.IMC commitment to provide excellent
customer services have been acknowledged by Toyota Motor Corporation and awarded the Customer
Service Excellence Award 2009.
(IMC Annual Report FY10)
Source : ( www.oppapers.com)
(www.toyota-indus.com)
Assesses :( 12th November 2010)

Weaknesses;
IMC is all equity financed company with zero long term debt.IMC financial results for FY10 for sales
and profits are at all time high however it is not likely that company will carry on the same momentum
for near future. Moreover company is not investing considerably in new projects and plants.IMC is
utilizing its manufacturing capacity at full and unless the margins increased significantly or they
increased their capacity by installing new manufacturing plants it will be quiet likely that the earning
momentum will not be the same as FY10.
Source :( www.dailytimes.com.pk)
Assess :( 15th November 2010)

Opportunities :
Pakistan automobile industry for LCV and PC is growing at the rate of 43%. In Pakistan context there
are 8 cars in 1,000 persons which is one of the lowest in the emerging economies which itself speaks
of high potential of growth in the auto sector and more in the car production. Rising per capita income
with changing demographic distribution and an anticipated influx of 30 to 40 million young people in the
economically active workforce in the next few years provides a stimulus to IMC to expand and grow.As
the environmental protection awareness is rising in Pakistan slowly, IMC has the opportunity to
introduce Hybrid cars in Pakistan to meet the needs of environment friendly people.
(IMC Annual Report, FY10)
Source :(www.nationmaster.com)
Assess :(16th November 2010)

Threats:
Pakistan domestic auto industry has barely started recovery from global financial crunch and currently
facing lots of challenges.Govt has recently signed Afghan Transit Trade Agreement and it is very
important to implement the agreed safeguard otherwise it would cause a serious threat to the local auto
market. One of the main reason of highest ever sales of the company during the FY10 is attributed to
high agricultural income and Floods, the recent and biggest natural disaster in the history of Pakistan
which affected 20 million people and destroyed the standing crops completely and because of this a
25% reduction in car sales is expected for the upcoming quarter.IMC is planning to cut output because
of expected slowdown in demand., regular shortage of power and Govt consistent pressure to cut down
the price of locally assembled and manufactured cars are major threats for the company.
(IMC Annual Report FY10)
Source :(smartinvestor.in)

Assess: (20th November 2010)

(Business Recorder, 13.10.10)

Porters Five Forces Model

The Porter's 5 Forces tool is a simple but powerful tool for understanding where power lies in a
business situation.

Bargaining Power of Customers:

Under this heading, we assess how customers of a company can affect its decisions.IMC products are
being backed up by the strong brand name Toyota. Company is manufacturing cars on orders and
operating at its full capacity. On the other hand demand is higher as compare to production of locally
manufactured and assembled cars in Pakistan as mentioned by Competition Commission of Pakistan
in their report. All of these factors pointed towards low bargaining power of customers cause the
demand is very high.
Source:( www.dailytimes.com.pk)
Assess : (20th November 2010)

Bargaining Power of Suppliers:

Here we assess, how much is there, the influence of supplies over the price of the product.
When it comes to suppliers of parts, the bargaining power of them is very low. The main reason is that
IMC is manufacturing most of the parts by itself and company has many options to buy from local and
international market as well. Company also gets some high technological parts directly from their
parent company.
(IMC Annual Report FY10)
When it comes to Energy suppliers, Pakistan is facing worst ever energy crisis in its history. The
bargaining power of energy suppliers is high because demand of energy resources like electricity and
gas etc is greater than supply with very few suppliers in the market. Gas and electricity supplies for
domestic and business purposes often cut for hours a day due to supply short fall which had a very bad
impact over the domestic industry and led to riots.Govt of Pakistan has taken some actions to
overcome this alarming problem one of them is to power supply to Karachi which is a main port and
industrial hub and where the main plant of IMC is located will be reduced to 300 MW a day.
Source:(www.news.bbc.co.uk)
Assess : (22nd November 2010)
Over all the power of suppliers remains medium to low in the scenario of IMC .

Threats from New Entrants:

Under this heading, we assess how easy is it for a potential new entrant to enter into the market and
then gain market share.
IT is quiet difficult to set-up a new car company as it requires huge capital and skills along with years of
research and development however Pakistans automobile market is growing with a rate of 43% which
is quiet high and will attract and provide the opportunity to the big car manufacturers like Ford to gain
advantage of such a high growth market. On the other hand Govt is putting consistent pressure to

reduce the prices of locally manufactured cars or they will ease the policy on imported cars which is
already liberal when compared to India, Thailand, or other countries in the region and commonly
misused by importers under transfer of baggage scheme. Such relaxed policies and high growth could
attract new entrants and thats why threat from new entrants is high.
(IMC Annual Report FY10)

Rivalry among Competitors

Under this heading we assess the relationship among the players in the sector and what policies are
they following, to compete or sustain in the market.
Competition Commission of Pakistan (CCP) in their sector specific study report regarding issues
related to car prices and fall and rise in production together insisted that it should be reviewed closely
to find out whether it was done intentionally or others factors were involved in this.CCP in their report
also highlighted the issues that automobile industry is facing problems with high prices ,late delivery,
low volumes and the competition is much more pronounced than ever to keep industry afloat. The
target for 2012 for car production was 500000 units per annum which is quiet unlikely to achieve in the
current business enviorment.CCP insisted and put pressure on Govt to allow or ease in the policies of
new and import cars in all categories in all sectors to promote competition in Pakistan auto sector.
Currently there is not such a stiff competition among the players of the market and they are trying to
sustain their market share rather than to increase it and thats why rivalry among competitors remains
low.
Source:( www.dailytimes.com.pk)
Assess: (23rd November 2010)

Threat from Substitutes:

Threats from substitute is not very high for the time-being as people prefer their own personal car, but
increasing traffic on roads and increasing pollution can make government think of other sources of
mass-transit like intercity tail services, bus-services etc and it can implement huge taxes to reduce
purchase of cars to force people use alternates.

3.6 Conclusions:
During Previous year, IMCL was able to capture the increase in the demand for their products
(passenger vehicles) by increasing its production capacity. Despite the decrease in the demand of
automobile vehicles during in previous years in Pakistan, IMC was able to increase and retain its sales
in automobile industry which caused its market share to increase and shows the customer confidence
on companys products.
Automobile sector is one of the fastest growing sectors in Pakistan. It experienced high growth in last
years because of availability of consumer finance and growing demand for automobiles. However in
FY09 the political instability and credit crunch combined with high inflation and interest rates effect the
sector growth. Although Pakistans economy is showing humble signs of recovery but year 2009-10
was very difficult for the automobile industry throughout the world as it was also affected by the
extension and duration of global economic crisis.
IMC delivered outstanding performance in FY10, resulting in exceptional 58.7% increase in sales as
compare to prior year and net earnings of RS.3.4 billion.Compnay proposed a final payment of RS 10 to
shareholder making a total payment of RS 15 per share 50% increase as compare to FY09.Earning per
Share for FY10 increased to RS 43.81 as compared to RS 17.62 in FY09 an 149% increase.
Earnings in FY10 were 54% higher as compared to previous year and 3.6% higher than FY08.The

increase in income reflected increased in demand both for PC and LCV which increased to 47% as
compared to previous year and companys continuous efforts to reduce fixed cost which became the
main reason for overall increased in profitability. Earnings in FY09 declined by ( %) from FY08 mainly
due to loss on revaluation on foreign exchange contracts, and recession which becomes the main
reason of high interest and sharp increase in mark up on advance from customers which rise from 2.8
million from FY08 to 8.8 million in FY09.
IMC has a very well experienced, talented and diversified management team with an overall market
share of 34.5%.Moreover IMC has the strongest 3s dealership network and performing best customer
services however company has less focus on increasing capacity by installing new plant.IMC can
exploit the growing demand of automobile sector by increasing capacity and to produce more
environmental friendly cars to its customers.IMC faces threats from recent Afghanistan and Pakistan
transit contract and consistent pressure from Govt to reduce prices for locally manufactured cars and
regular shortage of supply of power and on top of that flood, the natural and biggest disaster in the
history of country which destroys the crops and effected 20 million people throughout the country.
Currently the competition in automobile industry in Pakistan is not so intense. The medium to low
bargaining power of suppliers and low bargaining power of customers suggests that competition
among players is not so intense and companies trying to sustain their market share rather than to
increase it. Pakistan automobile Industry is growing at 43% which can attract the other cars
manufacturer to enter in to the market however sector requirement of huge capital investment and
baring in mind the liberal Govt policies on imported cars impose a considerable threat from new
entrants. Threat from substitutes remains low for the time being as people would like to prefer their
own cars and the public transport system is not very affected.

Recommendations.
Stakeholders can be defined as shareholders,employees,finance providers,managers,Govt and society
and analysis of the financial position of IMC shows that how company is meeting its targets as for
stakeholders are concerned.IMC has delivered the best ever performance in FY10 however company
wont be able to follow the same momentum of earnings as company is already operating at its full
capacity.IMC must have to increase their margins and it could be done by reducing waste and aligned
their operations bitterly with Toyota Production System as the parent company Toyota is best known for
their lean manufacturing system.
IMC should expand itself to increase its production and try to transfer all the modern technology used
in foreign countries to Pakistan as some of the high-tech parts cannot be manufactured locally due to
unavailability of modern techonology.This action will reduce the cost to customers as company wont
have to pay the duty imposed by the Govt on import.
IMC is all equity based company and they dont have any long term debt at their balance sheet so they
dont have to pay any fixed interest which is good and bad as well. If the company introduced long term
debt in to their capital structure it can enjoy tax savings as interest on debt is tax free and cheap as
well.
On the basis of last three years analysis of financial and business performance of IMC with its main
competitor HAL,I strongly recommend that IMC is in a far better position from an investment point of
view of would-be and approaching shareholders.