INTRODUCTION
Indus Motor Company was incorporated in 1989 as a joint venture company between the
House of Habib of Pakistan, Toyota Motor Corporation and Toyota Tsusho Corporation of
Japan. The Company manufactures and markets Toyota brand vehicles in Pakistan.
The main product offerings include several variants of the flagship
Corolla in the passenger cars category, Hilux in the light commercial vehicles segment and
the Fortuner Sports Utility Vehicle. The manufacturing facility and offices are located at a
105 acre site in Port Qasim, Karachi, while the product is delivered to end customers
nationwide through a strong network of 41 independent 3S Dealerships spread across the
country.
In its 25 years history since inception, IMC has sold more than
600,000 CBU/CKD vehicles and has demonstrated impressive growth, in terms of volumetric
increase from a modest beginning of 20 vehicles per day production in 1993 to 240 units daily
at present through the development of human talent embracing the Toyota Way of quality
and lean manufacturing. Over the years, IMC has made large scale investments in enhancing
its own capacity and in meeting customer requirements for new products. Today, Corolla is
the largest selling automotive brand model in Pakistan and it also has the distinction of being
# 1 in Toyotas Asian market.
The Company invests heavily in training its 2,300 plus workforce of team
members & management employees and creating a culture of high performing empowered
teams working seamlessly across processes in search of quality and continuous improvement.
The core values of the Company encourage employees to pursue high standards of business
ethics and safety; communicating candidly by giving bad news fi rst and to respect people.
The bi-annual TMC morale surveys show that employees rate IMC high on work environment
and level of job satisfaction.
The Company has played a major role in the development of the entire
value chain of the local auto industry and is proud to have contributed in poverty alleviation at
the grass root level by nurturing localization that, in turn, has directly created thousands of job
opportunities and transferred technology to over 60 vendors supplying parts. IMC is also a
major tax payer and significant contributor to the GOP exchequer.
To be the market leader and satisfy the requirements of its customers, the company has set
certain objectives.
These are:
Improve Quality
Enhance Efficiency
Minimize Cost
Increase Productivity
Over the previous years, the company has put in its best efforts to manufacture quality cars
designed for its customers. To improve their efficiency, the company gives great importance to
its human resource as the company believes that satisfied and quality conscious team can
produced quality products .The company is using the philosophy of Kaizen for continuous
improvement. It has become a way of life for the management of the company by doing these
efforts towards their objectives.
DEBT POLICY:
Indus Motor Company has no debt policy because they havent issued any
debt from past nine years. The company debt to equity ratio is 0:1 and it is
totally backed by equity.
IMC have a history of operating with no debt levels. Instead of debt, IMC
hold cash and liquid investments in order to make acquisitions, investments
and to run daily operations.
IMC have been successful in turning their zero-debt situation into a very
favorable operating model.
RISK POLICY:
Indus Motor faces various types of risks ranging from financial, credit, and price
and even to market risk.
Credit risk
It represents the risk of a loss if the counter party fails to discharge its
obligation and cause the other party to incur a financial loss. The Company
attempts to control credit risk by monitoring credit exposures, limiting
transactions with specific counterparties and continually assessing the
creditworthiness of counterparties.
Market Risk
Market risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices. Market risk
comprises of three types of risks: currency risk, interest rate risk and other price
risk.
Price risk
Price risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate as a result of changes in market prices (other than
those arising from interest rate risk or currency risk) whether those changes are
caused by factors specific to the individual financial instrument or its issuer, or
factors affecting all similar financial instruments traded in the market.
RISK MANAGEMENT
The Companys objectives when managing capital are to safeguard the Companys
ability to continue as a going concern in order to provide returns for shareholders
and benefits for other stakeholders and to maintain an optimal capital structure to
reduce the cost of capital. The Company is currently financing its operations
through equity and working capital. The Company has no gearing risk in the
current and prior year.
In order to mitigate these risks, the company engages in hedging activities to
mitigate risks and uses effective credit control to mitigate the credit risk.
On the whole, each and every risk listed above affects Indus Motor, however the
operation risks affects it the most and the company has adopted policies such as the
effective supply chain management to mitigate these risks.
Year
New car launch
1,500,000
1,600,000
1,700,000
1,000,000
500,000
1,000,000
600,000
1,000,000
700,000
400,000
500,000
600,000
600,000
8.00
6.90
1.10
8.24
7.18
1.06
8.49
7.46
1.02
8.74
7.76
0.98
$
(800,000)
1,400,00
0
1,000,00
0
400,000
Demand
Existing Capacity
Production from New
Project
Year
No of cars
Selling Price
Raw + VC
Gross Margin per car
Total Gross Margin
440,000
Fixed Cost
532,000
614,496
588,153
240,000 260,000
280,000
300,000
EBITDA
Depreciation
200,000
272,000
334,496
288,153
192,500
192,500
192,500
192,500
EBT
7,500
79,500
141,996
95,653
Taxes
2,250.00
23,850.00
42,598.80
28,695.79
EAT
Depreciation
EAT + Depreciation
Proceeds from Disposal
Tax on Gain on Disposal
Net Proceeds from
Disposal
197,750
FCF
248,150
291,897
259,457
35,000
1500
33,500
$
(800,000
)
197,750
248,150
NPV ANALYSIS
291,897
292,957
Gordon model:
As per the data available we can use dividend growth model to estimate the
growth rate of Indus motor. As far as dividend announced by the company growth
rate is 35%.
Year
New car launch
Demand
Existing Capacity
2,100,000
2,200,000
2,300,000
1,500,000
600,000
1,5000,00
700,000
1,500,000
800,000
500,000
600,000
700,000
800,000
8.00
6.90
1.10
8.24
7.18
1.06
8.49
7.46
1.02
8.74
7.76
0.98
$
(100000)
2,000,00
0
1,500,00
0
500,000
Year
No of units
Selling Price
Raw + VC
Gross Margin per car
Total Gross Margin
Fixed Cost
EBITDA
Depreciation
EBT
550000
636000
300,000 300,000
714000
784000
300,000
300,000
250000
336000
414000
484000
192,500
192,500
192,500
192,500
57500
143500
17250
EAT
Depreciation
40250
100450
155050
204050
192,500
192,500
192,500
192,500
EAT + Depreciation
Proceeds from Disposal
Tax on Gain on Disposal
Net Proceeds from
Disposal
232750
292950
66450
291500
Taxes
FCF
43050
221500
347550
87450
396550
35,000
1500
33,500
$
(1,000,00
0)
232750
292950
347550
466550
LOAN ISSUANCE:
Indus Motor Corporation will test a ten year tenor for its latest
bond, a Rs20 billion transaction that would be Pakistans one of
the largest corporate bond to date.
Issuance of corporate bond is gathering pace, helping broaden
Pakistans capital market, which in recent years has relied on the
government for the bulk of such deals.
Proceeds from the bond will help the company in settling their
own manufacturing plant in somewhere Sindh, with approximately
Rs18 billion investments.
Indus Motor Company (IMC) boosted its net earnings by a
whopping 135% to Rs9 billion in fiscal year 2015, but the
performance fell slightly short of market expectations.