Yet Another Loss For Hindustan Motors

Hindustan Motors Limited (HML) has been consistently posting losses since FY09, except in FY11 where the net profit stood at Rs.0.75 crore. In the last 10 quarters, the company has managed to profit all of four times. HML announced their results for Q1 FY13 on 13 August 2012 wherein the company reported a decline in net income from operations of 12.76 per cent, from Rs.119.86 crore in Q1 FY12 to Rs.104.56 crore in Q1 FY13. The company also posted a loss of Rs.35.49 crore in Q1 FY13 as compared to the profit of Rs.17.2 crore in Q1 FY12. Post result announcement, the stock price of HML dropped by 3.84 per cent.

HML has been losing out on a high amount of money due to several reasons from the declining sales volume of Mitsubishi models to the depreciating rupee. Mitsubishi’s product portfolio in India lacks the existence of a small car. Though the company has been planning to enter the hatchback segment, there seems to be no action after the announcement. Relatively lower volumes and a weaker distribution network has put the company to a significant disadvantage as compared to its competitors. The company has a market share of less than 1 per cent. The company’s longstanding of 10 years in the Indian market has done hardly any improvement with sales close to 4000 a year. HML has been also trying hard to sell the Ambassador which has been seeing the maximum demand from the replacement market of taxis. Government orders too have declined and new models by competitors have completely sidelined the car. The company is yet planning to launch new variants of the car as a plan to improve the situation. It is currently on its way to the introduction of BS IV diesel engines for Ambassadors in the taxi segment. Over the last few quarters, the rupee has depreciated majorly and the yen has grown stronger against other currencies. These currency fluctuations have drastically affected the profitability of HML with the company depending on imports for 56.53 per cent of the total input costs in FY12.

HML also operates in the components business with the manufacturing and selling of castings, forgings and stampings. This business has not been working well for the company due to the overall slowdown in the automobile industry and due to the highly competitive nature of the auto component business. The cash strapped company also has plans to turn this business around but we don’t see it happening any time soon. Overall, because of the inability of the company to show any strong standing in the increasingly competitive automobile business and due to the consistent losses made by the company over the years, we recommend investors to avoid the scrip.