Submitted to:

Sir Hamza Khalil

Submitted by:
Aaqib Ali
Ahmer Khan
Bazil Khan
Ovais Uddin

INTRODUCTION
Indus Motor Company was incorporated in 1989 as a joint venture company between the
House of Habib of Pakistan, Toyota Motor Corporation and Toyota Tsusho Corporation of
Japan. The Company manufactures and markets Toyota brand vehicles in Pakistan.
The main product offerings include several variants of the flagship
Corolla in the passenger cars category, Hilux in the light commercial vehicles segment and
the Fortuner Sports Utility Vehicle. The manufacturing facility and offices are located at a
105 acre site in Port Qasim, Karachi, while the product is delivered to end customers
nationwide through a strong network of 41 independent 3S Dealerships spread across the
country.
In its 25 years history since inception, IMC has sold more than
600,000 CBU/CKD vehicles and has demonstrated impressive growth, in terms of volumetric
increase from a modest beginning of 20 vehicles per day production in 1993 to 240 units daily
at present through the development of human talent embracing the Toyota Way of quality
and lean manufacturing. Over the years, IMC has made large scale investments in enhancing
its own capacity and in meeting customer requirements for new products. Today, Corolla is
the largest selling automotive brand model in Pakistan and it also has the distinction of being
# 1 in Toyotas Asian market.
The Company invests heavily in training its 2,300 plus workforce of team
members & management employees and creating a culture of high performing empowered
teams working seamlessly across processes in search of quality and continuous improvement.
The core values of the Company encourage employees to pursue high standards of business
ethics and safety; communicating candidly by giving bad news fi rst and to respect people.
The bi-annual TMC morale surveys show that employees rate IMC high on work environment
and level of job satisfaction.
The Company has played a major role in the development of the entire
value chain of the local auto industry and is proud to have contributed in poverty alleviation at
the grass root level by nurturing localization that, in turn, has directly created thousands of job
opportunities and transferred technology to over 60 vendors supplying parts. IMC is also a
major tax payer and significant contributor to the GOP exchequer.

OBJECTIVES OF THE COMPANY

To be the market leader and satisfy the requirements of its customers, the company has set
certain objectives.
These are:

Improve Quality
Enhance Efficiency
Minimize Cost
Increase Productivity

Over the previous years, the company has put in its best efforts to manufacture quality cars
designed for its customers. To improve their efficiency, the company gives great importance to
its human resource as the company believes that satisfied and quality conscious team can
produced quality products .The company is using the philosophy of Kaizen for continuous
improvement. It has become a way of life for the management of the company by doing these
efforts towards their objectives.

WEIGHTED AVERAGE COST OF CAPITAL:

A firms cost of capital is the average required rate of return on the aggregate of
investment projects. It is useful for:
Evaluating investment decisions.
Designing a firms debt policy
Appraising the financial performance of top management.
Indus Motor is wholly equity financed therefore its WACC comprises of equity
portion only. Indus Motor Company uses market value weights in order to
calculate cost of capital because it is more accurate than the book value weight.
The WACC of IMC changes due to changes in either the systematic risk or
unsystematic risk, which affect the company.

BETA OF INDUS MOTOR

The beta of the company is 1.05.

DEBT POLICY:

Indus Motor Company has no debt policy because they havent issued any
debt from past nine years. The company debt to equity ratio is 0:1 and it is
totally backed by equity.
IMC have a history of operating with no debt levels. Instead of debt, IMC
hold cash and liquid investments in order to make acquisitions, investments
and to run daily operations.

 IMC have been successful in turning their zero-debt situation into a very
favorable operating model.

RISK POLICY:
Indus Motor faces various types of risks ranging from financial, credit, and price
and even to market risk.

Credit risk

It represents the risk of a loss if the counter party fails to discharge its
obligation and cause the other party to incur a financial loss. The Company
attempts to control credit risk by monitoring credit exposures, limiting
transactions with specific counterparties and continually assessing the
creditworthiness of counterparties.

Market Risk
Market risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices. Market risk
comprises of three types of risks: currency risk, interest rate risk and other price
risk.

Price risk

Price risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate as a result of changes in market prices (other than
those arising from interest rate risk or currency risk) whether those changes are
caused by factors specific to the individual financial instrument or its issuer, or
factors affecting all similar financial instruments traded in the market.

The Company is exposed to price risk because of investments held by the

Company in mutual fund units.

RISK MANAGEMENT

The Companys objectives when managing capital are to safeguard the Companys
ability to continue as a going concern in order to provide returns for shareholders
and benefits for other stakeholders and to maintain an optimal capital structure to
reduce the cost of capital. The Company is currently financing its operations
through equity and working capital. The Company has no gearing risk in the
current and prior year.
In order to mitigate these risks, the company engages in hedging activities to
mitigate risks and uses effective credit control to mitigate the credit risk.
On the whole, each and every risk listed above affects Indus Motor, however the
operation risks affects it the most and the company has adopted policies such as the
effective supply chain management to mitigate these risks.

Year
New car launch

1,500,000

1,600,000

1,700,000

1,000,000
500,000

1,000,000
600,000

1,000,000
700,000

400,000

500,000

600,000

600,000

8.00
6.90
1.10

8.24
7.18
1.06

8.49
7.46
1.02

8.74
7.76
0.98

$
(800,000)
1,400,00
0
1,000,00
0
400,000

Demand
Existing Capacity
Production from New
Project

Year
No of cars
Selling Price
Raw + VC
Gross Margin per car
Total Gross Margin

440,000

Fixed Cost

532,000

614,496

588,153

240,000 260,000

280,000

300,000

EBITDA
Depreciation

200,000
272,000
334,496
288,153
192,500
192,500
192,500
192,500

EBT

7,500

79,500

141,996

95,653

Taxes

2,250.00

23,850.00

42,598.80

28,695.79

EAT
Depreciation

5,250.00 55,650.00 99,397.20 66,956.85

192,500
192,500
192,500
192,500

EAT + Depreciation
Proceeds from Disposal
Tax on Gain on Disposal
Net Proceeds from
Disposal

197,750

FCF

248,150

291,897

259,457
35,000
1500
33,500

$
(800,000
)

197,750

248,150

NPV ANALYSIS

291,897

292,957

Net present value

Assuming cost of capital of 10%.
NPV= 4253
Payback period = 3 years and 3 months
Discounted payback period = 3years and 11months
IRR= between 11% to 13 %
MIRR = 10.14%

Gordon model:
As per the data available we can use dividend growth model to estimate the
growth rate of Indus motor. As far as dividend announced by the company growth
rate is 35%.

Year
New car launch
Demand
Existing Capacity

2,100,000

2,200,000

2,300,000

1,500,000
600,000

1,5000,00
700,000

1,500,000
800,000

500,000

600,000

700,000

800,000

8.00
6.90
1.10

8.24
7.18
1.06

8.49
7.46
1.02

8.74
7.76
0.98

$
(100000)
2,000,00
0
1,500,00
0
500,000

Production from New

Project

Year
No of units
Selling Price
Raw + VC
Gross Margin per car
Total Gross Margin
Fixed Cost
EBITDA
Depreciation
EBT

550000

636000

300,000 300,000

714000

784000

300,000

300,000

250000
336000
414000
484000
192,500
192,500
192,500
192,500
57500

143500

17250

EAT
Depreciation

40250
100450
155050
204050
192,500
192,500
192,500
192,500

EAT + Depreciation
Proceeds from Disposal
Tax on Gain on Disposal
Net Proceeds from
Disposal

232750

292950

66450

291500

Taxes

FCF

43050

221500

347550

87450

396550
35,000
1500
33,500

$
(1,000,00
0)
232750

292950

347550

466550

Assuming cost of capital of 10%.

NPV= 33478
Payback period = 3 years and 3 months
Discounted payback period = 3years and 11months
IRR= between 11% to 13 %
MIRR = 13.58%

LOAN ISSUANCE:
Indus Motor Corporation will test a ten year tenor for its latest
bond, a Rs20 billion transaction that would be Pakistans one of
the largest corporate bond to date.
Issuance of corporate bond is gathering pace, helping broaden
Pakistans capital market, which in recent years has relied on the
government for the bulk of such deals.
Proceeds from the bond will help the company in settling their
own manufacturing plant in somewhere Sindh, with approximately
Rs18 billion investments.
Indus Motor Company (IMC) boosted its net earnings by a
whopping 135% to Rs9 billion in fiscal year 2015, but the
performance fell slightly short of market expectations.

The makers of Toyota Corolla in Pakistan posted an after-tax profit

of Rs9.1 billion or Rs116 per share in the year under review, up
135% compared to Rs3.9 billion or Rs49 per share in the
corresponding year. The company is financially very strong and is
willing to issue bond in order to attract investor at an attractive rate of
KIBOR+2.