Toyota turns to banking: Investment earnings drive profitability amid automotive downturn

Of the company’s Rs4.8b pre-tax profit, Rs3b came from investment earnings as it ends quarter with final earning of Rs3.2b

LAHORE: Toyota announced its profits for Q3FY23 in a notification to the Pakistan Stock Exchange (PSX) on 26 April. The company ended the quarter with a quarterly earning of Rs 3.2 billion and a final 9MFY23 earning of Rs 5.8 billion. Whilst the quarterly earning amounts to a 141.74% quarter-on-quarter (QoQ) increase, 9MFY23 earnings are down 61.79% year-on-year (YoY).

The most notable figure in Toyota’s earnings report is that Rs 3 billion of its Rs 4.8 billion pre-tax earnings is attributable to its investment activities. This is in line with Toyota’s trend for the current fiscal year, whereby the bulk of its earnings now originate from it essentially being a bank rather than an automotive company.

Q3FY23 earnings

Toyota’s revenue for Q3FY23 clocked in at Rs 48.1 billion. This is both a QoQ and YoY decrease from its previous earnings. On a QoQ basis, Toyota’s earnings fell by 2.79% from its previous Rs 49.5 billion. Whilst on a YoY basis, it recorded a significant dip of 29.35% from last year’s Rs 68.2 billion. Toyota’s cost of goods sold (COGS), however, fell more significantly on a QoQ basis, dropping by 9.83% from Rs 50 billion last quarter to Rs 45.15 billion for Q3FY23. On a YoY basis, COGS fell by almost a third, with it dipping 28.32% YoY from Rs 62.99 billion in Q3FY22 to the aforementioned Rs 45.15 billion.

COGS as a percentage of revenue clocked in at 93.68% for Q3FY23 compared to 100.99% in Q2FY23 and 92.33% in Q3FY22. The change is reflected in Toyota’s gross profit margin (GPM), which stood at 6.32% in Q3FY23. This represented a significant improvement from the -0.99% it saw in Q2FY23 but again a dip from the 7.67% it recorded in Q3FY22. Gross profit for the quarter clocked in at Rs 3 billion, a 720% QoQ improvement from its previous loss of Rs 490 million but a downgrade from its Rs 5.2 billion gross profit last year.

Toyota’s operating profit stood at Rs 1.8 billion. This represented a 224.19% QoQ improvement from its previous loss of Rs 1.48 billion but a 52.73% reduction from the Rs 3.89 billion it saw last year. Other notable changes include a reduction in Toyota’s other income. It fell 12.12% QoQ from Rs 3.45 billion in Q2FY23 to Rs 3.03 billion in Q3FY23. Other income is also lower by 4.63% YoY from the Rs 3.1 billion it recorded in Q3FY22. Toyota’s tax expense for Q3FY23 came in at Rs 1.62 billion. This represented a 174.53% QoQ increase from the previous Rs 590 million but a 16.74% YoY improvement from its corresponding Rs 1.94 billion last year. Toyota’s effective tax rate (ETR) clocked in at 33.51% for the quarter compared to last quarter’s 30.74% and last year’s 27.56%.

Toyota’s final earnings for the quarter were Rs 3.2 billion. This is a 141.74% QoQ increase from the previous Rs 1.3 billion but a 37.15% YoY reduction from the corresponding Rs 5.11 billion last year.

9MFY23 earnings 

Toyota’s 9MFY23 revenue stood at Rs 135 billion, a whopping 33.61% YoY contraction from its Rs 203.4 billion last year. COGS, however, fell by only 27.45% YoY in comparison from Rs 185.839 billion to Rs 134.8 billion. COGS as a percentage of revenue also rose from 91.36% in 9MFY22 to 99.85%. The relative changes in COGS and revenue are reflected in Toyota’s GPM. Its GPM for 9MFY23 came in at a measly 0.15% compared to 9MFY22’s 8.64%.

Gross profit as a whole contracted YoY by 98.88% from 9MFY22’s Rs 17.56 billion to the current Rs 196 million. Similarly, earnings from operations dipped by a massive 121.76% YoY as Toyota actually recorded an operating loss of Rs 2.945 billion for 9MFY23 compared to the Rs 13.535 billion operating profit it recorded for 9MFY22. The saving grace to Toyota’s 9MFY23 earnings is the 50.71% YoY increase in its other income which clocked in at an astounding Rs 11.653 billion for 9MFY23 compared to last year’s Rs 7.7 billion. The increase is so massive that other income accounted for 135.54% of Toyota’s pre-tax earnings in 9MFY23 compared to its 36.49% contribution last year.

Toyota’s tax expense for 9MFY23 came in at Rs 2.7 billion representing a 27.84% YoY decline from its previous Rs 5.899 billion. Its 9MFY23 ETR clocked in at 32.03% compared to the 27.84% it saw in 9MFY22. Toyota’s final 9MFY23 earnings stood at Rs 5.8 billion. This is a 61.79% YoY decline from its Rs15.2 billion in 9MFY22.

What’s the verdict? 

“Indus Motors has reported robust financial results. The company’s profitability was bolstered by a strong performance in other income, derived from its cash balances in a high-interest-rate environment. Despite a decline in operating profit, it remained resilient compared to the previous half of the fiscal year,” says Sateesh Balani, Head of Research at Providus Capital.

“Despite facing currency headwinds during the quarter, margins exhibited a sharp rebound due to the company’s persistent price revisions. Should the currency stabilise at this level, we may anticipate further enhancement in profitability in the near future,” Balani added.

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Daniyal Ahmad
Daniyal Ahmad
The author is a member of the staff, and covers the automobile, energy and advertising insdusties as a sector analyst. He can be reached at [email protected]


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