Indus Motors Company (IMC) Analysis

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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 Ltd's 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 we're supposed to excel at accounting techniques like Ratio Analysis and business techniques like Porter's 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.

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 firm's 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 investor's analysis in terms of earning per share.

To Carry out SWOT analysis.

To study the company's market position by using porter's five forces model.

To conclude the current situation and prospects of company's business and financial position and to suggest the improvements


(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?


(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 (

(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. Company's 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 ACCA's 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.


For shareholders, employees, creditors, investors, management.


For shareholders, management, suppliers, creditor and competitors.


For management, shareholders, creditors and competitors.


For shareholders, lenders, creditor and potential investors.


For shareholders, potential investors, management.

P2-Corporate Reporting (International) BPP, 2005 pg.223


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 :(

(Accessed 15th October 2010)

Porters Five Forces Analysis

The pure competition model does not present a viable tool to assess an industry. Porter's 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 Porter's framework emphasized that rivalry and competition as the key components of the strategy.

( Hax & wilde,2001 pp.42)


(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.


(Accesses 30th October 2010)

Business Recorder 14th May, 2009


Company's 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: (

Source :(

(Accessed 20th October 2010)

The Sector's 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 :(

(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.



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 company's 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 company's 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 organisation's 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 day's 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 doesn't 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 company's gearing ratio nil. On the other hand it has some disadvantages as well, the company's 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. It's 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)


Assessed:( 10th November 2010)

HAL's 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.


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 : (


Assesses :( 12th November 2010)


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 :(

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 :(

Assess :(16th November 2010)


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 t

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