PREFACE:

This is an opportunity to do this sort of work is the academic life with the guidance of our professors. This project will be a landmark in my future understanding to the project management and report writing skills, as there is lot to do in this project. The comprehension of annual report of any company was quite a good experience and gave us another dimension to see things professionally. The project is intended to provide thorough view about the company outlook, performance reviews, analysis and its understanding of the market trends.We put efforts and enthusiasm in doing this project. The analyst to this report will be in good position to judge the efforts and hardworking in preparation of this project. We made efforts to come on the level where the expectation from this project can be satisfied. The research report will include right from company profile to the economic and financial analysis of the annual reports. This project gives us a lot of expertise in handling practical and real data as well as accounting and financial assessment of accounting statements. The ratio analysis has also been done so as to see the company from the investor and analyst point of view.

ACKNOWLOEDGEMENT:
All the praise is for Allah, the most merciful and beneficent, who blessed us with the knowledge, gave us the courage and allowed us to accomplish this task. We are especially indebted to our supervisors and teachers. I would like to acknowledge the guidance and vision of our lecturer Prof. Asif Bashir. He done a good job while making our mind and instruct us how to do the project. It was his guidance that we are able to converge our ideas in to this project. I am also thankful to my parent which have consecrated a lot of their precious time to enable us have this level of education and their hard working made us liable to return this favor appropriately.

CONTENTS
PREFACE. ACKNOWLOEDGEMENT.. VISION. INTRODUCTION. BUSINESS PRINCIPLES. SEC CODE DIVERSIFICATION. COMPETITORS... SIZE OF THE FIRM: CAPITALIZATION. THE RATIOS...

a) LIQUIDITY RATIO.
b) CURRENT RATIO c) ACID TEST RATIO / QUICK RATIO. d) PROFITABILITY RATIO.. e) OPERATING PROFIT.. f) NET-PROFIT-AFTER TAX.. g) RETURN-ON ASSETS.. DUPONT ANALYSIS .. LEVERAGE ANALYSIS.. a) LONG-TERM-DEBT/EQUITY RATIOS b) DEBT-tO-TOTAL ASSETS....................................................... c) EFFICIENCY RATIOS.. d) TOTAL-ASSET-TURNOVER e) A/R TURNOVER (TIMES)

(TIMES)

f) DAYS IN INVENTORY. g) DAYS REQUIRED TO COLLECT ACCOUNT

RECEIVABLE STOCK VALUATION. REQUIRED RATE OF RETURN. CAMP. PRO FORMA STATEMENT... BRIEF AUTO INDUSTRY ANALYSIS... FINANCIAL ANALYSIS COMPARISON PROBLEMS WITH ATLAS HONDA.. SOLUTIONS.. UNDERPERFORMANCE IN COMPARISON WITH KSE-100. TARIFF A N D DUTY STRUCTURE. BIBLOGRAPHY

Summary:
Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor Company Limited Japan, and the Atlas Group of Companies, Pakistan.The company was incorporated on November 04, 1992 and joint venture agreement was signed on August 05, 1993. The ground breaking ceremony was held on April 17, 1993 and within a record time of 11 months, construction and erection of machinery was completed. The first car rolled off the assembly line on May 26, 1994. Official inauguration was done by then President of Pakistan, SardarFarooq Ahmad Khan Leghari. Mr.Kawamoto, President of Honda Motor Company Limited Japan was also present to grace the occasion. The company is listed in Karachi, Lahore and Islamabad Stock Exchanges. Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor Company Limited Japan, and the Atlas Group of Companies, Pakistan.Atlas Honda Ltd. (Manufacture and distribution of motorcycles) and Honda Atlas Power Product (Pvt) Ltd. (Distribution of power products) are the other business lines of Atlas Honda Group.After the dismal performance in last couple of years,the automobile industry has shown strong recovery inthe year 2011. Amid the challenging business environment in the yearunder review, the demand of your company productssteadily increased by 33.4%, against the industrys salesgrowth of 25.1%.The unit sale was also improved anda total of 16,467 units were sold against 12,344 units, lastyear.Year over year,
Honda Atlas Cars Pakistan Ltd. has been able to grow revenues from 15.9B to 22.0B. Most impressively, the company has been able to reduce the percentage of sales devoted to cost of goods sold from 101.54% to 99.13%. This was a driver that led to an improvement in the bottom line from a loss of 852.2M to a smaller loss of 298.5M.During Apr-Jul 2011, sales were slow due to the

floods and auto makers witnessed a slowdown in production due to supply disruptions following Japanese earthquake.Sales in the urban centers remain subdued throughout the year as elevated financing rates lowered the demand for consumer financing. Sales could improve

after the budget incentives and decrease in prices and especially if the central bank lowers down the key policy rate. Ratio analysis is primarily used to compare a companys financial figures over a period of time, a method sometimes called trend analysis. The companys current ratio is very low as compared to the industry ratio, it is less than 1.00 and is continuously decreasing from year 2007 to 2010 due to increase in accounts receivables and decrease in marketable securities, company sold marketable securities which increased cash but it did not improve company current ratio which is not favorable for the company. The auto industry is trading at a very low PER relative to the KSE-100 index. Growth expectations remain strong, but the row between the government and the assemblers seems never ending with regard to the best way to deal with the problems of long waiting periods and the advent of quick delivery premiums. The free float of the assemblers is typically very small. This has thus restricted the stocks not to be very well traded. However in the last few months interest has been created in the scrips which is visible from the price performance relative to the KSE-100 index.

VISION
Focusing on satisfaction (customers, associates and shareholders) with challenging spirit and flexibility, we are dedicated to supplying latest generation cars with advanced technology, greater fuel efficiency and competitive prices, along with friendly and efficient after sales back up, maintaining quality as core of all activities

INTRODUCTION
Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor Company Limited Japan, and the Atlas Group of Companies, Pakistan. The company was incorporated on November 04, 1992 and joint venture agreement was signed on August 05, 1993. The ground breaking ceremony was held on April 17, 1993 and within a record time of 11 months, construction and erection of machinery was completed. The first car rolled off the assembly line on May 26, 1994. Official inauguration was done by then President of Pakistan, SardarFarooq Ahmad Khan Leghari. Mr.Kawamoto, President of Honda Motor Company Limited Japan was also present to grace the occasion. The company is listed in Karachi, Lahore and Islamabad Stock Exchanges.

Board of Directors
Mr. Yusuf H. Shirazi - Chairman

 Mr. Takeharu Aoki - President/CEO Mr. Aamir H. Shirazi Mr. JawaidIqbal Ahmed

Mr. Shigeru Yamazaki Mr. Takashi Nagai

Mr. Yukimitsu Miyagi

Company Secretary
Mr. SardarAbid Ali Khan

Chief Financial Officer

Mr. Ayaz Mahmood

Executive Committee
Mr. Takeharu Aoki Mr. Sardar Abid Ali Khan Mr. Yukimitsu Miyagi

Audit Committee
Mr. Aamir H. Shirazi - Chairman Mr. Takeharu Aoki Mr. JawaidIqbal Ahmed

Mr. Shigeru Yamazaki Mr. Yukimitsu Miyagi Mr. Imran Farooq Secretary

Auditors
M/s A. F. Ferguson & Company Chartered Accountants

Legal Advisor
Cornelius, Lane & Mufti Bokhari Aziz &Karim

Bankers
Askari Commercial Bank Ltd.

Bank of Tokyo-Mitsubishi UFJ, Ltd. Citibank N.A. Deutsche Bank AG Habib Bank Ltd. MCB Bank Ltd. National Bank of Pakistan Royal Bank of Scotland Soneri Bank Ltd. Standard Chartered Bank (Pakistan) Ltd. Summit Bank Ltd. United Bank Ltd.

Share Registrar
M/s HameedMajeed AssociatesHM House, 7 - Bank Square,Lahore

BUSINESS PRINCIPLES
HONDA MOTOR CO., LTD. JAPAN CORPORATE PHILOSOPHY
Maintaining a global viewpoint, we are dedicated to supplyingproducts of the highest quality yet at a reasonable price forworldwide customer satisfaction.

MANAGEMENT POLICY
1) Proceed always with ambition and youthfulness 2) Respect sound theory, develop fresh ideas and make themost effective use of time 3) Enjoy your work and encourage open communications

4) Strive constantly for a harmonious flow of work 5) Be ever mindful of the value of research and endeavor

HONDA ATLAS PHILOSOPHY

CARS

(PAKISTAN)

LIMITED

CORPORATE

1) Dynamic manufacturing and marketing of prestigiousproducts to the entire satisfaction of customers 2) Create ideal working environment for continuousdevelopment of product and personnel 3) Provide adequate return to shareholders and fulfillcorporate civic obligations

MANAGEMENT POLICY
1) Respect for all man has priority over others. 2) Man is the key in controlling i.e. machines, methods andmaterials. 3) Follow 3S spirit i.e. small, smart and speed. 4) Believe in 3A Hands on Approach i.e. be on Actual Spot,look at the Actual Spot and confront the Actual Situation. 5) Be a good corporate citizen; assume a responsible role incommunity.

PRIORITY STANDARDS OF CONDUCT

1) Safety: There can be no production without safety. 2) Quality: To achieve complete customer satisfaction byfocusing on smart team work, meeting all applicable legaland regulatory requirements & continually improving ourstrategies and goals. 3) Productivity: With safety and quality each of us will striveto excel the performance in all fields of our activities i.e.Production Divisions, Marketing & Planning, After SalesService, Finance, Import, Purchase & Logistics and HumanResources & Administration etc.

HUMAN RESOURCES AND SUCCESSION PLAN

Human Resources Policy is to hire young, fresh, energetic andactive associates to meet the existing and future workforcerequirements and providing its associates maximumopportunities for internal mobility through personal trainingand development to enable them to take higher positions.

Human Resource Division has to have succession plan for eachkey job/area to make sure the continuity of operations in therelevant division and to fill the temporary/permanent vacancy.

QUALITY POLICY
We, at Honda Atlas Cars (Pakistan) Limited, strive for supplyingtop quality Honda Cars to get complete Customer Satisfaction. We accomplish this by: Smart Team Work Meeting all applicable legal and regulatory requirements Continually improving our strategies and goals

ENVIRONMENT POLICY
Honda Atlas Cars (Pakistan) Limited, being responsiblemember of the society considers the preservation of the globalenvironment as a crucial concern. Our environmental philosophy is firmly based on the followingprinciples: 1) Recognize the impacts of our activities, products andservices on environment; 2) Formulate objectives and targets for pollution prevention,environmental impacts mitigation and resourceconservation as far as technically feasible; 3) Operate in compliance with applicable legal & otherrequirements with the commitment to preserve globalenvironment; 4) Create awareness and understanding about environmentalissues among our associates; 5) Commitment to continual improvement of theenvironmental performance and review of theenvironmental management system to ensure itssuitability, adequacy and effectiveness; 6) Keep public and other interested parties informed on ourenvironmental performance, if deemed necessary.

SAFETY, HEALTH AND ENVIRONMENT

Honda Atlas Cars (Pakistan) Limited conducts its businessresponsibly and in a way to make sure health, safety andprotection from environmental aspects of its associates and thesociety. We implement and maintain the programs that providereasonable assurance that the business will do the following:

1) To comply with all applicable government and internalhealth, safety and environmental requirements 2) Design facilities and conduct operations in a way thatavoids risk to human health, safety and the environment 3) To examine and communicate the known hazards ofoperations with relevant health, safety and environmentalprotection information to potentially affected persons

OPERATING PRINCIPLES
1) Always keep the deadline 2) Never make excuses 3) Teamwork

SEC CODE
(HCAR:PA)

DIVERSIFICATION
Honda Atlas Cars Pakistan Limited is a joint venture between Honda Motor Company Limited Japan, and the Atlas Group of Companies, Pakistan.Atlas Honda Ltd. (Manufacture and distribution of motorcycles) and Honda Atlas Power Product (Pvt) Ltd. (Distribution of power products) are the other business lines of Atlas Honda Group.

COMPETITORS

Toyota Suzuki Nissan Daihatsu

SIZE OF THE FIRM: CAPITALIZATION

3,428,000,000 Rupees

SALES (Units) Year

thousands)

2007

2008 15,604

2009 12,502

2010 12,344

2011 16,467

Sales(in Rs. 18,709

After the dismal performance in last couple of years,the automobile industry has shown strong recovery inthe year 2011. Amid the challenging business environment in the yearunder review, the demand of your company productssteadily increased by 33.4%, against the industrys salesgrowth of 25.1%.The unit sale was also improved anda total of 16,467 units were sold against 12,344 units, lastyear.
Year over year, Honda Atlas Cars Pakistan Ltd. has been able to grow revenues from 15.9B to 22.0B. Most impressively, the company has been able to reduce the percentage of sales devoted to cost of goods sold from 101.54% to 99.13%. This was a driver that led to an improvement in the bottom line from a loss of 852.2M to a smaller loss of 298.5M.

During Apr-Jul 2011, sales were slow due to the floods and auto makers witnessed a slowdown in production due to supply disruptions following Japanese earthquake. Sales in the urban centers remain subdued throughout the year as elevated financing rates lowered the demand for consumer financing. Sales could improve after the budget incentives and decrease in prices and especially if the central bank lowers down the key policy rate.

OWNERSHIP
Subsidiary (Honda Atlas Cars Pakistan Limited is a joint venture between Honda

Motor Company Limited Japan, and the Atlas Group of Companies, Pakistan) The main significant companies are Atlas and Honda.

INTERNATIONAL
Company doing all his business in Pakistan

Financial Analysis: Financial analysis is the conversion of financial data into useful information for decision making. Therefore, virtually any use of financial statements or other financial data for some purpose is financial analysis and essentially is the primary focus of accounting and financial professionals. Financial analysis can be internal e.g. decision analysis by a company using internal data to understand or improve management and operating results or external e.g. comprehensive analysis for such purposes as commercial lending or investment activities. The key is how to analysis available data to make correct decisions. We can use ratio analysis to try to tell us whether the business Is profitable Enough money to pay its bill Could be paying its share of tax Is using its assets efficiently Has a gearing problem

The Ratios:
Ratios are highly important profit tools in financial analysis that help financial analysts implement plans that improve profitability, liquidity, financial structure, reordering, leverage and interest coverage. Although ratios report mostly on past performances, they can be predictive too and provide lead indication of potential problem areas. Ratio analysis is primarily used to compare a companys financial figures over a period of time, a method sometimes called trend analysis. Through trend analysis you can identify trends good and bad and adjust your business practices accordingly. You can also see how your ratios stack up against other businesses both in and out of your industry. Financial ratio analysis groups the ratios into categories which tell us about different facets of a companys finances and operations. An overview of some of the categories of ratios is given below Leverage Ratios which shows the extent that debt is used in a companys capital structure.

 Liquidity Ratio which give a picture of a companys short term financial situation or solvency. Operational Ratios which use turnover measures to show how efficient a company is in its operations and use of assets. Profitability Ratios which use margin analysis and show the return on sales and capital employed. Solvency Ratios which give a picture of a companys ability to generate cash flow and pay it financial obligations. It is imperative to note the importance of the proper context for ratio analysis like computer programming, financial ratio is governed by the GIGO law of Garbage in Garbage Out! a cross industry comparison of the leverage of stable utility companies and cyclical maning companies would be worse than useless.

Users of Financial Information:

The list of categories of readers and users of accounts includes the following people and groups of people. Investors Lenders Employees Suppliers and other trade creditors Customers Governments and their agencies Public Financial analysts Environment groups

Liquidity Ratio:
While liquidity ratios are most helpful for short term creditors/suppliers and bankers, they are also important to financial managers who must meet obligations to suppliers of credit and various government agencies. A complete liquidity ratio analysis can help uncover weaknesses in the financial position of business.

Current Ratio:
The concept behind this ratio is to ascertain whether a companys short term assets (cash, cash equivalents, marketable securities, receivable and inventory) are rapidly available to pay
.

off its short term liabilities (note payable, current portion of term debt, payables, accrued expenses and taxes). In theory, the higher the current ratio, the better

YEAR CompanyRatio Industry Ratio

FY2007
0.94

FY2008
0.79

FY2009
0.70

FY2010
0.62

FY2011
0.67

1.65

2.41

2.01

1.76

1.23

Figures above show that the companys current ratio is very low as compared to the industry ratio, it is less than 1.00 and is continuously decreasing from year 2007 to 2010 due to increase in accounts receivables and decrease in marketable securities, company sold marketable securities which increased cash but it did not improve company current ratio which is not favorable for the company.

Acid Test Ratio / Quick Ratio:

The quick ratio or the acid-test ratio is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liability. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position. YEAR FY2007 FY2008 FY2009 FY2010 FY2011 CompanyRatio Industry Ratio 0.39
0.237 0.240 0.16 0.19 0.25

0.17

0.18

0.35

0.19

The companys quick ratio increased in 2008 due to decrease in accounts receivables which also resulted in increase in cash, after that next two years accounts receivables increase and ratio also decreased, but in 2011 ratio improved due to increase in cash. But the ratio is in line with the industry which means cash position is right.

Profitability Ratio:

Gross Profit
A companys cost of sale or cost of goods sold represents the expense related to labor, raw materials and manufacturing overhead involved in its production process. This expense is deducted from the companys net sales/revenue, which results in a companys first level of profit or gross profit. The gross profit margin is used to analyze how efficiently a company is using its raw materials, labor and manufacturing related fixed assets to generate profits. A higher margin percentage is a favorable profit indicator. YEAR CO. RATIO IND. RATIO FY2007
1.01% 7.00%

FY2008
4.26% 4.75%

FY2009
1.25% 3.08%

FY2010
-1.51% 2.83%

FY2011
0.90% 3.63%

Companys CGS has increased with time thats why GP Margin has decrease specially in 2010.it sharply decrease due to decrease in sales. It is also sufficiently lower than industry. Company should increase his sales.

Operating Profit
By subtracting selling, general and administrative (SG&A), or operating expenses from a companys gross profit number, we get operating income. Management has much more control over operating expenses than its cost of sales outlays. Thus, investors need to scrutinize the operating profit margin carefully. Positive and negative trends in the ratio are, for the most part, directly attributable to management decisions.

YEAR Comp Ratio Ind. Ratio

2007
-1.03% 6.32%

2008
2.02% 4.67%

2009
-2.82% 1.39%

2010
-3.36% 2.55%

2011
-0.42% 3.19%

Because company is not getting profit from his operations because administrative expenses are very high than industry and his CGS is also very close to his sales or even high.

Net Profit after Tax

Often referred to simply as a companys profit margin, the so called bottom line is the most often mentioned when discussing a companys profitability. While undeniably an important number, investors can easily see from a complete profit margin analysis that there are several income and expense operating elements in an income statement that determine a net profit margin. It behooves investors to take a comprehensive look at a companys profit margins on a systematic bases. YEAR
CO. RATIO

2007
-1.54% 3.49%

2008
0.51% 2.50%

2009
-2.83% 0.73%

2010
-5.37% 0.21%

2011
-1.35% 1.22%

IND. RATIO

Company going in to losses from last five years except 2008. They also have to pay interest even though they are getting losses and it is further increasing their losses.

Return on Assets:
This ratio indicates how profitable a company is relative to its total assets. The return on assets (ROA) ratio illustrates how will management is employing the companys total assets to make a profit. The higher the return, the more efficient management is in utilizing its asset base. The ROA ratio is calculated by comparing net income to average total assets, and is expressed as a percentage.

YEAR CO. RATIO

2007 -1.16%

2008 4.53%

2009 -2.59%

2010 -5.14%

2011 -1.38%

DuPont Analysis:
One of the easiest ways to gauge whether a company as an asset creator or a cash consumer is to look at the return on equity (ROE). In its simplest form, ROE is calculated by dividing one years earning by shareholders equity. Businesses that generate high returns on equity are business that create substantial assets for each dollar invested.
.

The DuPont Analysis is a means of analyzing the three components of return on equity:
Net Margin = Net Income / Sales. How much profit a company makes for every

Rs.1.00 it generates in revenue. The higher a companys profit margin the better. Asset Turnover = Sale / Total Assets. The amount of sales generated for every dollars worth of assets. This measures the firms efficiency at using assets. The higher the number, the more debt the company has.

YEAR NOPAT/ Assets Sales/Assets Return On Investment

2007 -1.16% 2.1 -11%

2008 4.53% 2.2 2%

2009 -2.59% 1.4 -14%

2010 -5.14% 1.8 -43%

2011 -1.38% 2.1 -18%

Leverage Analysis: Long Term Debt / Equity Ratios:

A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earning as a result of the additional interest expense. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread the same amount to shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing. The debt/equity ratio also depends on the industry in which the company operates. For example, capital intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2, while personal computer companies have a debt/equity of under 0.5

YEAR

FY2007

FY2008

FY2009

FY2010

FY2011

CO. RATIO IND. RATIO

2.40 1.29

1.11 0.59

2.52 1.25

3.53 1.67

5.30 2.17

Except in 2008 when financial position of company was also satisfactory, companys debt equity ratio is always higher than 2 which is also much higher than the industry ratio. The reason is that company has not been issuing new shares since long which it should do now.

GRAPH

Debt to Total Assets:

The debt to assets or debt to total assets financial ratio measures a companys solvency. It is derived by taking the companys total liabilities and dividing by the companys total assets, which can both be found on the balance sheet. It also explains that if a company is going to dissolve than how much it has assets against debt.

YEAR CO. RATIO IND RATIO

2007
0.71 1.53

2008
0.53 0.34

2009
0.72 0.47

2010
0.78 0.52

2011
0.84 0.51

Company debt to asset ratio is satisfactory and approximately in line with the industry, which means company has sufficient assets but is not able to utilize its assets properly and productively. In our opinion it is a case of poor asset management which should be enhanced.

GRAPH

Efficiency Ratios:
The efficiency ratios and other ratios are key to understanding financial statements. Our ratio calculation spread sheets reduced time and efforts in calculating decision making ratios. They

reduce risk for lenders and investors and enable owners, managers and consultants to increase productivity and business profits.

Total Asset Turnover (Times):

A low asset turnover ratio means inefficient utilization or obsolescence of fixed asset, which may be caused by access capacity or interruptions in the supply of raw materials. The assets turnover ratio simply compares the turnover with the assets that the business has used to generate the turnover.

YEAR CO. RATIO IND. RATIO

FY2007
2.1 2.33

FY2008
2.2 2.50

FY2009
1.4 1.57

FY2010
1.8 2.07

FY2011
2.1 2.13

Company asset turnover ratio is satisfactory, it means that problem is in operations due to which company is going to regular losses.

Inventory Turnover (Times):

The Inventory Turnover Ratio measures the number of times a company sells its inventory during the year.

YEAR CO. RATIO IND. RATIO

FY2007
6 5.07

FY2008
4.8 6.63

FY2009
4.6 5.57

FY2010
5.8 7.57

FY2011
7.3 7.60

Inventory turnover is a bit lesser than the industry after 2007,but it is satisfactory considering the economic condition of Pakistan.

A/R Turnover (Times):

.

An accounting measure used to quantify a firms effectiveness in extending credit as well as collecting debts. The Receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. YEAR CO. RATIO IND. RATIO 2007
24.15 30.26

2008
24.24 31.6

2009
20.79 32.5

2010
17.31 29.7

2011
19.80 28.9

Company A/R turnover is lesser than the industry and A/R amount is also very high, it is also one of the main reason of company losses

Days in Inventory:
A financial measure of a companys performance that gives investors an idea of how long it takes a company to turn its inventory (Including goods that are work in progress, If applicable) into sales.

YEAR CO. RATIO

IND. RATIO

FY2007
60 72.67

FY2008
75 62.00

FY2009
80 73.67

FY2010
62 54.00

FY2011
50 52.33

It was much better in 2007 but also satisfactory in other years as well.

Days Required to Collect Account Receivable:

It measures the number of Days it takes to collect amounts receivables. YEAR FY2007 FY2008 FY2009 FY2010 FY2011

CO. RATIO
IND RATIO

24.15 21.00

24.24 22.33

20.79 25.33

17.31 24.33

24.15 25.33

Company collect its A/Rs in good time and it is also in line with industry even better than industry, but the main problem is there are huge amounts in A/R balances.

STOCK VALUATION
In financial markets, stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally potential market prices, and thus to profit from price movement stocks that are judged undervalued (with respect to their theoretical value) are bought, while stocks that are judged overvalued are sold, in the expectation that undervalued stocks will, on the whole, rise in value, while overvalued stocks will, on the whole, fall.

REQUIRED RATE OF RETURN:

The minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project

CAMP:
In finance, the capital asset pricing model (CAPM) is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that assets nondiversifiable risk. CAPM = Krf +( KM-Krf) = 27.95 %

* Beta Risk free Rate beta 1.1547 Average Val of KM 25.9960 = 13.36119 167

Risk return comparati ve framewor k:

Beta 0 0.5 1 1.5 2 2.5 3

RR 13.3611 9167 19.6786 1923 25.9960 4678 32.3134 7434 38.6309 019 44.9483 2946 51.2657 5702

Comments:
Beta of the company is 1.1547 which shows that this stock is less volatile. It means stock price is directly proportion to the market trend. So, Stock is move according to the market trend. If market moves upward the stock also moves upward and vice versa.

Price comparison:
.

Data & its Evaluation Dividend Paid in 2006 Shares Issued in 2006 Net Income2006 Total Equity2010 Total Assets2010 CAPM

94,190 42,000, 000 705,294 1,975,6 45 8,945,7 83 0.27951 19

Pay Out Ratio = Net Income-2008/Dividend2008 0.1335 = 471 RR = 1 - Payout Ratio 0.8664 = 529 ROE = Total Equity / Total Asset 0.2208 = 465 Growth = ROE * RR 0.1913 = 531

Div /Share 2008 Div/Share-

= =

2.242 619 2.671

2009 Div/Share2010

751 3.182 999

^ Expec ted rate of retur n

K = (D1/ P0)+G ^ P0=D1/(KS-G)

53% 36.10 527

Brief Auto Industry Analysis:

Auto industry witnessed tremendous boom for the last few years due to inspiring economic and financial market growth. Especially emergency of auto leasing in Pakistan the auto sales had jumped like anything. But time seems changing its face the other way and the industry is feared to suffer losses in their estimates. There are many reasons to believe this. such as; Global Oil and Financial crisis are feared to negatively impact the domestic oil and financial sectors especially the leasing and credit as they have already increasedestimated had debts index. The Increasing inflation. and feared GDP decline has started pessimistic estimations on roughly all the major sectors including auto sector.Rising cost of steel (a major raw material) and exchange rate hikes are potential threats to auto assembler's profits. Auto sector had already decline with 3.72% having unit sales sliding from 755558 units per year in FY06 to 727491 units per year in FY07. The segment has further decayed by 1.4% in I QFY-08 where its sales stand at 353 thousands units as compared to corresponding period sales of 357 thousand units. All this is indicating that the auto sector is most likely to he revised down hills and their performance will decline having some negative impacts on their financial performance and Indus Motors Company is no exclusion to it.

Financial Analysis Comparison:

We will now make a one to one comparison of honda with indus motors company limited (toyota), which is the main competitor of honda. Indus Motors Company Limited V/s Honda Motors Company Limited

Indus Motors Company Limited:

Company Achieved unit sales growth of 4%. which is higher, then industry unit's sales of 2% for the first quarter ending September 2008. Indus motors company sold 48.546 units worth Rs. 10.76 billions for the first quarter as against -17.694 units worth 9699129 sold for the corresponding period 2006 registering a net sales growth of 11%.The company's annual sales for FY07 grew from Rs. 35.2 billions to 40.16 billions enrolling a markup of 14./o. This shows a bit declining trend in sales with 3 % less growth rate in the quarter as compared to annual growth. The company's market share has enhanced to 28% while it was 24% for FY07. The market share has been 230/0 in FY05 and 21% in FY06. Cost of Goods Sold for the first quarter FY08 was 9.4 billion while for the corresponding period last year (1QFY-07) were Rs.8.7 billions showing 8% growth. It has shown a declining trend in the current quarter s compared to last years COSGS growth of 15% for the FY -- 07 from Rs. 35.5 billion to Rs. 30.8 billion. The other side of the picture shows that inventories have grown tremendously from Rs.2.9 billions to Rs. 3.5 billions marking 30% of growth. This is not a good sign for the next quarter performance as it will increasecosts and is indicating expected sales decline. Profit after tax has grown impressively with 46% YOY for the 1 QFY08 amounting to Rs.920 million as compared to Rs. 629million (PAT) for the 1 QFY07. This has been possible due to decline in their financial costs. which subsequently reduced the tax impact. Looking at the annual figures of FY07. we see that the PAT growth was only 3.65% from 2.6 billion to 2.7billiob rupees. Even though the 1 QFY-08 performance is good the expected annual PAT may not cross the last year PAT margins due to feared decline in auto sales because of economic discrepancies and hiking energy prices. The Company currently employs 1.429 people. With sales of Rs. 35.24 billion Pakistan, this equates to sales of Rs. 21.8million per employee. This is much higher per employee sales performance showing how efficient their current performance is.

Honda Motors Company Limited:

The companys annual sales for FY08 grew from Rs. 17,055.15 millions to 14.715 millions .Phis show a bit declining trend in sales. The company's market share has enhanced to 15% while it was 12% for FY07.

Cost of Goods Sold for the FY08 was 14,088 million while for the corresponding period last FY07 were Rs.16,882 billions showing decline of 19% growth. It has shown a declining trend from previous year. The other side of the picture shows that inventories also decrease from Rs.2,704 millions to Rs. 1.612 millions marking 67% of decline. Profit after tax has grown impressively amounting to Rs. 75.010 million as compared to Rs. (264) million (PAT) for the FY07. This has been possible due to decline in their financial costs, which subsequently reduced the tax impact. Looking at the annual figures of FY07, we see that the PAT growth was from (264) million to 75 million rupees. Even though the FY08 performance is good from last year PAT margins even market is feared to decline in auto sales because of economic discrepancies and hiking energy prices.

PROBLEMS WITH ATLAS HONDA:

High Price Impact of increasing vehicle prices. Decline in Sale Sharp decline in sales is significant increase dollar price and increase in prices by the assemblers due to the impact of 5 per cent Federal Excise Duty and increase in sales tax from 15 per cent to 16 per cent. High markup rates Markup rates have been increased rapidly. Currently KIBOR (Karachi Inter Bank Offer Rate stands) on 14.0%. Technical Problem No road grip poor suspension system and breaks.

SOLUTIONS:
The high production cost, lack of modern technology, the tariff structure for imported units and manufactures greed for higher profits make the indigenous production saleable only in the domestic market with ample demand. The tariff policy should be reinforced. The ban on reconditioned or smuggled vehicles should he strictly observed as well as dumping, under invoicing, both in components parts and completely built up (CBU) units. We have unskilled labor in abundance. Auto industry requires literate and skilled labor which we are ten-ibly short on. Bank Finance cars only induce a false sense of status and well being. Due to high interest rates, car financing is on decline as compared to last years. Besides high interest rates, numerous service charges being charged by the banks, higher insurance premiums, forcefully installing trackers and continuous decline in the quality of service forcing consumer avoid getting fresh loans from banks and

leasing companies.

Underperformance in comparison with KSE-100:

Over the past years, auto sector has underperformed even though the sector scrips promise a lot on a fundamental basis. Government intervention in terms of allowance of imported reconditioned cars holds up as a sword on the neck for the automakers. Even though some recent developments pose negatively for the sector, we reiterate positive stance on the sector on the back of robust demand. The auto industry is trading at a very low PER relative to the KSE-100 index. Growth expectations remain strong, but the row between the government and the assemblers seems never ending with regard to the best way to deal with the problems of long waiting periods and the advent of quick delivery premiums. The free float of the assemblers is typically very small. This has thus restricted the stocks not to be very well traded. However in the last few months interest has been created in the scrips which is visible from the price performance relative to the KSE-100 index.

Tariff a n d Duty Structure:

In order to minimize the demand-supply gap in the short term government of Pakistan significantly reduced duties on imported cars in the budget for the financial year FY06.

Within the last five years. duties on the import of new cars were reduced by almost three times and by more than half in the last years only.

< 1000 cc > 1000 cc <1300 cc > 1301 cc <1500 cc > 1 501 cc <1600 cc > 1601 cc <1800 cc > 1800 cc <3000 cc > 3000 cc Sales Tax Income Tax CID

75% 100% 100% 125% 125% 200% 200% 15% 5.0% 35%

75% 100% 100% 125% 125% 150% 150% 15% 6.0% 35%

50% 50% 70% 70% 80% 100% 100% 15% 6.0% 35%

50% 50% 50% 65% 65% 75% 75% 15% 6. % 35%

3.75 5.00 % 6.25 % 6.25 7.50 % 7.50 7.50

The implication of current duty structure has resulted in a flood of imported cars particularly in the range of 4 x 4 pick-ups and SUVs, inundating the local market. The total share taken up by the imported cars has been in the range of 6%-8% which is expected to go up to 12%15% in the next couple of years if the current policies continued. The details of imported cars show that customs cleared over 23,000 cars in 2005. This included over 13.000 used and around 10,000 new cars. This figure is enough to show how prodigal Pakistanis are in spending money for buying luxury cars. The number is likely to reach 40,000 in FY07. In addition to the flood of used cars, major local manufacturers are now shifting focus by concentrating on imported vehicles. Honda Accord, Toyota Altis / Camry. Suzuki Liana / APV, Mitsubishi Lancer and Nissan Sunny, Chevrolet Exclusive / Optra, Hyundai Coupe / Sonata / Terracan. Chinese Cherry QQ cars are few of them. Custom duty, sales tax and CVT on different passenger cars along with distributors of foreign assembled vehicles are given in the appendix. Relaxation in tariff and import policy is not only hurting the ongoing initiative of local manufacturers btj also has its repercussions on the local vendor industry. In the wake of rising interest rates, alarmingly high inflation, impact of volatility of USS against other currencies, this relaxation is viewed as counterproductive\ for the local industry.

BIBLIOGRAPHY:
http://www.halaltamweel.com/616/PAKISTAN-Halal%20Stocks-ATLH-Update.aspx http://www.honda.com.pk/financial2011/annual.html http://www.honda.com.pk/pakistan/index.html http://en.wikipedia.org/wiki/Automotive_industry_in_Pakistan http://www.google.com.pk/url?sa=t&rct=j&q=sales%20trend%20of%20atlas%20honda%20car %20during%202009%20-%202011&source=web&cd=1&ved=0CB4QFjAA&url=http%3A%2F %2Fwww.honda.com.pk%2FPDF%2FAnn_032011%2F11%2520Chairman%2527s

%2520Review.pdf&ei=vI4UT7KTGrKK4gSeiIy9CA&usg=AFQjCNEb7a9V1asGURD1N3vES7F2 WBW8iQ&cad=rja http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=HCAR:PA