The Pakistan Credit Rating Agency Limited
Press Release


Sohail Ahmed Qureshi

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PACRA Maintains Entity Ratings of Honda Centre (Pvt.) Limited

Rating Type Entity
(29-Jul-22 )
(29-Jul-21 )
Action Maintain Maintain
Long Term BBB BBB
Short Term A2 A2
Outlook Stable Stable
Rating Watch - -

The ratings take comfort from Honda Centre's dealership status with Honda Atlas Cars Pakistan Limited–owned by Atlas Group and Honda Motor Company Limited, Japan. Honda Centre (Pvt) Limited is among the largest authorized 3S dealership for Honda Atlas Cars Pakistan Limited in Pakistan. Honda Centre has been in the auto dealership industry for over a decade now and has captured adequate market share. The sponsors have a good understanding of business and have been managing it well. During the year revenue remained stagnant and depicted 33% revenue from after-sales services as compared to 29% in June-21. The company has long-term contracts with multiple institutional customers for periodic maintenance and after-sales services. According to Pakistan Automotive Manufacturers Association (PAMA), the top-selling Honda Cars are the Civic and City which is having 89% sales volume against total vehicle sales. Honda Atlas unveiled its Honda City 6th generation and Honda Civic 11th generation with a Honda Sensing feature. Demand drivers of the automobile industry are highly correlated with macro-economic indicators such as GDP growth, employment, disposable income, consumer confidence, and accommodative monetary policy. The main industry challenges are global supply chain disruptions, semi-conductor chip shortages, resulting in late deliveries, and associated financial charges. Furthermore, soaring raw material and energy prices coupled with rupee devaluation further deteriorate the margins. On the flip side, a higher policy rate of 15% will peter out the demand for consumer financing. The dealership revenues reciprocate from the company’s (Honda Atlas) performance against the demand. In spite of being in the midst of multiple challenges, the Honda City demand will continue to gain upward motion due to its smaller-engine variant (less than 1300cc) which is subject to fewer taxes and better fuel mileage. The company has implemented a strong system of internal controls across the organization, where compliance is being ensured by Honda Atlas as well. Furthermore, the governance structure may be further strengthened by including independent oversight and adopting the practice of preparing quarterly accounts. Financial risk profile of the company appears adequate with comfortable coverages, working capital cycle, and cashflows. Capital structure is leveraged where borrowings are mainly comprised of short-term for working capital management. Going forward, the inclination in vehicle prices will necessitate an increase in associated commission revenue, thus improving margins.
The ratings are dependent on sustainable growth in revenues, margins, and seamlessly managing trade receivables. Good corporate governance practice is considered pivotal for a growing business concern.

About the Entity
Honda Centre was incorporated in 2007 as a private limited company. It was incorporated to function as an authorized 3S (Sales, Services, and Spare Parts) dealership for Honda Atlas Cars Pakistan Limited. The dealership is owned by the three brothers from the sponsoring family. Mr. Yasir Raza is the CEO and Mr. Taimur Raza and Mr. Hassan Raza are the executive directors. The sponsoring family has other successful running businesses in the oil and gas sector as well which is named 'EGAS Private Limited'.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.