Karachi, May 04, 2023 (PPI-OT): HCAR- Uncovering complexities of inventory issues

Over the course of 4QMY23, HCAR has hiked prices by cumulative ~35%, on the back of PkR devaluation (down by 17%QoQ), along with the increase in sales tax to 25% on vehicles with engine capacity of 1,400cc and above.

HCAR’s production remains well below capacity (HCAR MY23 Production: 25,356 units, down by 35%YoY), leading to delivery times increasing to ~10 months.

In 3QMY23 HCAR posted PAT of PkR 811mn (EPS: PkR5.68) higher by 82%YoY where company profitability was majorly driven by high gross margins amid frequent price hikes during the period. To note, prices across the company’s offerings increased by an average of 35% during the quarter.

The stock is currently trading at ~5.4 times its MY24 earnings, compared to P/E of 8x averaged over past 5 years. We have a “Sell” stance on the stock with a Dec’23 target price of PkR127.0/sh, which offers a total return of 17.1% from last close, including a 2.1% dividend yield.