AKD Securities Limited Equity Research – Daily Report

Karachi, May 15, 2019 (PPI-OT): Pakistan Autos: Strong variants fail to save industry sales

Total industry sales for outgoing April’19 fell to 19,868 units -15%MoM/-25%YoY held back by soft passenger car sales (-14%MoM/-21%YoY), cratering LCV and pickups offtake (-21%MoM/-42%YoY), marking a trough, in a high-base month for industry offtake.

Cumulative 10MFY19 total industry/car sales (210,821/177,435) fall short of 10MFY18 sales by -7%/-3%YoY, with primarily commercial sector constituents (LCV/Truck sales during period fell -22/-34%YoY), coming off a cliff (10MFY18 LCV sales of 35,359 was a peak for the segment)

For PC segment sales, Mehran’s winding down was reflected in 800 and below segment offtake flat-lining (-31%MoM/-39%YoY for April’19) while 1,300CC+ sales facing the tax non-filer sales ban on1,700CC+ vehicles and 10% FED levy managed smaller declines (-6%MoM/-16%YoY). Moreover, cumulative numbers show the 1000CC segment strengthened its position in the segment-wise sales split (800 and below/1000CC/1300CC+ sales over 10MFY19 moved -24/+12/+4%YoY).

Amongst OEMs, prominence of Corolla (April’19 sales moved +11%MoM/+6%YoY) moderated INDU’s overall numbers (+11%MoM/-7%YoY) while PSMC/HCAR sales dipped further (-22/-26%MoM and -27/-38%YoY) tainting wider 10MFY19 cumulative sales (PSMC/INDU/HCAR sales shift -10/+5/-11%YoY).

A tough demand environment (inflation suppressing consumer discretionary spend) mixed with operational headwinds (rising cost of borrowing, PkR weakness pushing prices) make for a terse backdrop for the space at large. With its competitive ‘moats’ being tested, INDU’s investment thesis gets further traction from planned segmentation of its Corolla variant (1,300CC new model launch of Vios), where prevailing Corolla sales indicate significant new-model sales bump on launch (forecasted from 2HFY20). At current levels the stock trades at FY19/20 P/E of 6.8/6.4x.

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