Traffic delays resulting from the unrest in Syria are eating into the profits of GB Auto.
The Egyptian car manufacturer reported a 59 per cent drop in first-quarter net income, to 18 million Egyptian pounds, compared with the previous quarter. GB Auto's margins hit a record low as deliveries to Iraq, its second-biggest market, slowed because vehicles were transited through Syria, where civil uprisings have intensified.
Revenues fell 9 per cent quarter-on-quarter, to 1.7 billion pounds.
"Political unrest impacted the company's operations in Iraq," said Mai Nehad, an analyst at HC Securities, based in Cairo, in a note to clients. Business in Iraq was hit hard, with volumes down 8 per cent quarter-on-quarter, as unit deliveries from Cairo were delayed "due to the security situation in Syria, its natural import route", Ms Nehad said.
GB Auto, which fell 0.1 per cent after the news emerged yesterday, has underperformed deeply compared with its home index. Its shares are up a mere 0.1 per cent since January, compared with an increase of 38.1 per cent during the same period on the EGX 30 Index.
GB Auto's main business is in cars, and it controls 32 per cent of the Egyptian market. The company caters to a wide number of international brands seeking to avoid high-import tariffs on fully assembled cars by having their vehicles put together in Egypt. The company is also the sole distributor of the "tuk-tuk", a three-wheel vehicle, made by India's Bajaj Group.
"The three-wheeler segment was the notable underperformer, its gross margins fell on the back of a government decision in January to raise customs duties on tuk-tuks to 40 per cent from 10 per cent, which adversely impacted volumes and margins," Ms Nehad said.
The three-wheeled motorised rickshaws have emerged as a durable solution to Egyptian transportation woes in the aftermath of the civil uprising that forced Hosni Mubarak to resign as president. Rickshaw sales broke records after the revolution, before the introduction of the fees.
GB Auto's net profit is also dependent on currency movement, and it carries exposure to multiple currencies, such as the US dollar, the Korean won and the euro.