Atlas on losing streak

The glory of Atlas Bangladesh Ltd in the two-wheeler industry started fading seven years ago. 

Atlas is now down at the bottom of the industry list from its previous position as the second largest player, despite the near threefold growth of the local two-wheeler industry.

On Monday, the listed company posted an annual loss for the fourth consecutive year, despite a moderate profit in the fourth quarter which merely served to reduce the loss incurred over the previous nine months.

The year 2013 marked the beginning of Atlas's troubles, as its Indian partner Hero Honda triggered the much awaited split of their joint venture. Both the Indian brand Hero and the Japanese brand Honda began running their separate plants and marketing channels in Bangladesh. 

Honda began a joint venture with the government, while Hero joined hands with local automobile house Nitol-Niloy. 

Atlas' annual motorcycle sales plunged below 1,250 in the 2014-15 financial year, from nearly 37,000 in the 2012-13 financial year because the state-owned listed company failed to retain either of the big names. 

However, according to company officials who preferred to remain anonymous, sales picked up to 3,400 during the 2018-19 financial, signalling recovery.

With the departure of Honda, Atlas also lost its older business of two-wheelers from non-Indian plants of the Japanese firm, as Honda itself started marketing those in Bangladesh.  

As the stock of Hero Honda and Honda bikes kept depleting, Atlas failed to find any Indian or Japanese brand to partner with. 

In 2016, the company entered into a two-year contract with the Chongqing Zongshen group, one of the top five two-wheeler manufacturer in China, for importing, assembling and marketing their motorcycles. 

However, the market did not welcome Zongshen motorcycles. 

The company failed to sufficiently increase its annual motorcycle sales. In the 2015-16 fiscal year, Atlas posted a net loss, which had never been witnessed before by the new generation of shareholders.

Analysts concluded that the partnership with Zongshen had backfired, as the company began losing money the same year it started selling the Chinese motorcycles. 

In Bangladesh, the two-wheeler market is significantly dominated by Indian made products, no matter where the brand originates from. 

Industry people say that availability, low cost of aftermarket parts and perceptions about quality in case of Indian two-wheeler are the main reasons behind Zongshen's failure. 

However, despite a poor response to Zongshen motorcycles, the collaboration contract between both companies was extended by two more years at the beginning of 2018. 

Partnership with TVS Auto

In May 2018, Atlas entered a contract with TVS Auto Bangladesh Ltd, a subsidiary of Indian two-wheeler manufacturer TVS Auto, to explore opportunities with a better product. 

As a state-owned enterprise, Atlas enjoys a protected market to cater to government institutions, autonomous bodies and government backed NGOs and projects.  

Under the contract, Atlas Bangladesh is buying motorcycle parts from TVS and assembling them to sell to institutions. 

By upgrading the assembly line at their own plant, Atlas is currently able to assemble 30,000 TVS motorcycles. But, as the demand is yet to grow significantly for this niche market, Atlas is assembling only 10 percent of this capacity.

Speaking to The Business Standard, Atlas Bangladesh Managing Director ANM Kamrul Islam said, "Now, TVS is contributing over 80 percent of our sales. We have been given the right to exclusively assemble and sell the 125 cc TVS Max model, which is not being sold by TVS Auto Bangladesh in our market." 

"We are exploring opportunities in automobile spare parts manufacturing as well," he said, adding that Atlas is going to invest in an electric fan manufacturing plant to secure a diversified source of revenue and profit. 

"I hope that in the coming years, our sales will be much higher and that it will be enough to cover all the operational costs and pay higher dividends to shareholders," Kamrul said.  

Latest financial results

The annual earnings posted at the Dhaka Stock Exchange on Monday reveal that Atlas Bangladesh suffered losses for the fourth consecutive year. 

In the financial year ended in June 30, 2019, it lost Tk0.99 per share, down from Tk1.11 in the previous year. 

Despite losses, armed with a debt-free balance sheet and some non-operating income from assets, the company has declared that it will distribute 5 percent cash dividends. 

"Atlas imported Zongshen motorcycle parts a few years back, the stock of which is yet to be exhausted," said Kamrul Islam. 

But, many competitors later started enjoying lower tax and duty burdens, as they are emerging as manufacturers. Atlas fell behind in terms of both costing and pricing. 

"That is why Atlas has to sell Zongshen motorcycles at a price lower than the then import cost," he added. 

In recent years, the government reduced taxes and duties if a motorcycle company added more value locally. 

Signs of recovery 

Back in its heyday, Atlas Bangladesh had dealers in almost all towns across Bangladesh. 

But now, the number has dropped to below 20, as dealers failed to sell enough Zongshen motorcycles.

Once a blue-chip stock at both local bourses that used to post high earnings per share and pay huge amounts of cash dividend each year, Atlas Bangladesh has now lost its appeal in the stock market as well. Prices had once reached above Tk700 per share.

However, there are very subtle signs of recovery, as shares of the company closed at Tk122 on Monday at the Dhaka Stock Exchange – a 5.3 percent gain over the session. 

Analysts interpreted the reduction in losses as a sign of hope. 

In the previous fiscal year, Atlas had posted an after-tax loss of Tk3.76 crores for the first nine months. But, during the fourth quarter, it made a profit of around Tk50 lakh, reducing annual losses to Tk3.27 crores.

"Our sales are concentrated at the second part of the fiscal year, as the government entities usually plan during the first half, and expedite procurement during the second half," said the managing director of Atlas Bangladesh.

The first quarter of the current fiscal year is reflecting his explanation, as the company again lost Tk1.2 crores during the July-September period of the 2019-20 fiscal year.

The company had to clear some of the Zongshen stock at discounts, once procured at a high cost, in the last three months. However, even the discounted price was higher than the price of the motorcycles sold by its competitors.