Karachi, June 30, 2021 (PPI-OT): Pakistan Strategy: FY22 Budget amendments focusing on autos and banks

In the National Assembly session yesterday, Govt. has been able to successfully get parliament’s nod on Finance Bill 2021. Major amendments from initially presented Finance bill relate to, i) disincentivizing investments in Govt. securities by Banking sector, ii) increased incentives for the auto sector, and iii) change in sales tax classification of milk manufacturers, amongst others.

The Finance Bill amendment enhances reduction in GST from 17% to 12.5% on vehicles up to 850CC to vehicles up to 1000CC (positive for PSMC and LUCK through picanto) while the FED of 2.5% has been slashed across the board. The potential reduction in prices is expected to drive volumetric sales of PSMC north (every 5k incremental cars sold would yield PkR2.3/sh in earnings assuming GM at 6%).

FY22 budget certainly is a continuation of Govt.’s pro-growth policies however, IMF’s view on the same will remain a topic of discussion in the days to come.

Away from Budget’22, we also preview Jun’21 inflation where we expect it to clock in at 10.0%YoY vs. 10.9%YoY in May’21 with monthly inflation standing at 0.03%MoM. Contained inflation reading is primarily at the back of contracting food inflation (down 0.82% MoM on account of favourable adjustments in chicken and fresh fruit prices).