AKD Securities Limited – AKD Daily (25 May 2023)

Karachi, May 25, 2023 (PPI-OT): Pakistan Autos - The Challenging Case of Pakistan’s Auto Sector

The impact of restrictions has hit the auto assemblers hard where auto assemblers are facing shortage of CKD kits leading to frequent plant shutdown. Where demand side issues also persist, where auto assemblers have hiked prices by a cumulative 30% in 1QCY23, blaming the PkR devaluation and increased taxation for the hikes. To note, the PkR devalued by 23%QoQ in 1QCY23, while taxes on 1,400cc cars and above were raised to 25%.

HCAR’s production remained well below capacity, with the company producing ~26,176 units in MY23 vs actual capacity of 50,000 units. HCAR’s volumetric growth in MY24 is expected to come in at 7%YoY, and thereafter to grow at a CAGR of 11% between MY24 and MY27.

The company’s equity has been reduced to PkR83.3/sh as of Mar’23. Trade Payables have ballooned during recent times, as the company is unable to pay its Holding Company against the import of CKD kits. As of Mar’23 end, of the PkR89bn in payables, PkR48.3bn was owed to the Holding Company.

Production in 10MFY23 has fallen by 50%, while the delivery times have increased substantially, as the company struggles to import CKD kits. Hence, as of late, the company resembles more of an investments firm rather than an auto assembler.