Toughened vehicle market conditions weigh on United Motors performance

United Motors Lanka PLC, the authorized distributor for Japan’s Mitsubishi vehicles among other brand-new auto brands saw its bottom-line for the quarter ended September 30, 2016 (2Q17) falling 37 percent to Rs.343. 1 million from a year ago as the rise in cost of sales outweighed the rise in sales, the interim results filed with the stock exchange showed. 

The earnings per share narrowed to Rs.3.40 from Rs.5.41 a share a year ago. 
For the six months the group made a net profit of Rs.638.6 million or Rs.6.33 a share, also down 29 percent from the same period last year.  

During the September quarter, the sales rose by 6.4 percent Year-on-Year (YoY) to Rs.4.5 billion but  cost of sales rose by a faster 19 percent YoY to Rs. 3.7 billion as the rupee weakened and the duties increased to curb excessive importation of vehicles in to the country by the government. 
As a result, the gross profit fell by 26 percent yoy to Rs.863.9 million. The finance cost also rose sharply by 122 percent yoy to Rs. 62.3 million. 

United Motors group had the best financial year last year recording a net profit of Rs.1.7 billion, an increase of 35 percent and a revenue of Rs. 15.3 billion, a 45 percent increase YoY as the performance was supported by reduced duties on vehicles and very low interest rates as the burgeoning middle income class was in a vehicle frenzy. 

As a result close to 700,000 vehicles were imported to Sri Lanka, both brand-new and pre-owned, recording the highest ever number of vehicles registered in a single year. 
But from the fourth quarter of 2015 the government brought in multiple measures to curtail excessive importation of vehicles such as 70 percent loan-to-value (LTV) ratio, hike in duties as well as interest rates which squeezed the credit driven vehicle imports. 

During the first nine months, brand-new car registrations sharply fell and according to the latest data available for September, the registrations fell to 1, 879 units from an all time record of 9, 427 units in 12-months ago.
United Motors is the agent for range of Mitsubishi branded Japanese vehicles, Perodua Axia from Malaysia and some other Chinese and European brands. 
United Motors failed to capitalise on the duty reduction on less than 1,000 CC category of vehicles last year as the company did not have vehicles in the small category. This eroded its market share to less than 1 percent. 
But the Sports Utilities Vehicle (SUV) market share rose from 15 percent in 2014 to 25 percent in 2015 due to sales in dual- purpose vehicles, SUVs and plug-in hybrid (PHEV) in the Mitsubishi category. 
However, under the small car category, Associated Motorways Private Limited (AMW) backed by UAE-based Al Futtaim group, is having a clear lead due to its range of smaller cars such as Maruti, Renault Kwid and Datsun Go introduced recently. 

Renault Kwid gained leadership in the small car segment clocking in 857 units in September, dethroning the previous market leader Maruti, which saw the registration of 525 units.
Other businesses of United Motors involves spare parts sales, work-shop repairs, Valvoline oil business, sale of TVS two and three-wheelers.   

Further diversifying its operations, the company also assembles vehicles to successfully face economic cycles and increase local value addition and job creation.