Forced by import restrictions, Diesel and Motor Engineering PLC (DIMO) has decided to venture into the assembly of vehicles.
“The current Government policy with regard to vehicle imports led us to consider the option of assembling vehicles in Sri Lanka. We have obtained the necessary approvals to perform a vehicle assembly operation on a semi-knock-down (SKD) basis, and the service will be available in the market soon,” DIMO Chairman Ranjith Pandithage said.
The assembly operation will be carried out at DIMO’s premises in Weliweriya, he added in the Company’s Annual Report for FY21.
He told DIMO shareholders that a restriction on the import of passenger and commercial vehicles came into effect in May 2020, effectively closing the doors to the new vehicle sales business.
For DIMO FY21 was one of the toughest years for the motor segment with a nationwide decline of 45% in new registrations of motor vehicles during 2020/21.
In FY21, the vehicles sales segment’s pre-tax profit suffered a 48% decline to Rs. 340 million whilst turnover declined by Rs. 7.3 billion or 53% to Rs. 6.4 billion. The band also prevented the new models of DIMO’s flagship brands from being introduced in Sri Lanka whilst sales of Mercedes vehicles imported up to the time of the import ban in May 2020 and pre-owned DIMO certified vehicle sales were the main contributors to the segment.
The import of spare parts also came under increased regulation with supplier credit stipulations imposed for several spare part categories.
In response to the changed regulatory environment, DIMO in FY21 re-organised the vehicle sales team assigning them to the pre-owned vehicle sales business. It simultaneously actioned plans to harness the potential of after-sales businesses, including spare parts, the success of which is evident in the year-end results of the vehicle after-services business, Pandithage said.
The vehicles after-service segment recorded year-to-year growth of 11%, contributing 31% to the group’s segment results. DIMO said efforts to increase bay utilisation and vehicle service times, as well as marketing investments to stimulate market pull for vehicle spare parts, contributed to the segment’s growth. Revenue from the vehicle parts business recorded a 26% increase in FY21.
Notwithstanding the hit from the motor business, thanks to counter and progressive strategies, including timely diversification, DIMO ended FY21 on a positive note.
Chairman Pandithage said from its inception, DIMO has been involved in the business of vehicle imports, which has been the company’s dominant business.
“The restrictions on vehicle imports affected this dominance and adversely impacted our revenues, which we were able to overcome owing to our previously planned strategy of securing revenue from other sources. With considerable contributions from other business segments, the group was eventually able to achieve the planned results. Considering the historical dominance of DIMO’s automobile sector, this is a milestone change in our history with potential for exponential growth,” he said.
Group revenue fell by 11% to Rs. 30.8 billion owing to the hostile external business environment. However, Group CEO Gahanath Pandithage said the well-diversified product portfolio with diverse scales of margins allowed the group to increase its gross profit by 2% to Rs. 7.46 billion.
“This stable gross profit, together with a 44% reduction in net finance cost, resulted in a 167% increase in group Profit After Tax from Rs. 201 million in 2019/20 to Rs. 536 million in 2020/21,” he added. Pre-tax profit was Rs. 720 million up from Rs. 280 million in FY20. Earnings per share rose from Rs. 21.12 to Rs. 52.72.