JS Securities Limited – JS Research (08-11-2019)

Karachi, November 08, 2019 (PPI-OT): Demand to remain dismal for autos in October

We expect volumes to remain subdued during the month, declining by 57% YoY to 10,810 units, compared to 24,906 units in Oct-2018.

Honda Atlas (HCAR) could potentially witness the biggest contraction in demand yet again, with an anticipated 72% YoY plunge in volumes.

Indus Motor Company (INDU) is likely to follow suit with a 61% YoY drop in unit sales forecasted.

Pak Suzuki Motor Company’s (PSMC) volumes are expected to shrink by 48% YoY.

As has been the case over the previous few months for autos, Oct-2019 shall most likely not be an exception. We expect volumes to remain subdued during the month, declining by 57% YoY to 10,810 units, compared to 24,906 units in Oct-2018. Honda Atlas (HCAR) could potentially witness the biggest contraction in demand yet again, with an anticipated 72% YoY plunge in volumes. Indus Motor Company (INDU) is likely to follow suit with a 61% YoY drop in unit sales forecasted. The reasons are unchanged for such a drastic dip in demand for the OEMs, i.e. cars have become too costly for consumers following huge spikes in car prices following bouts of devaluation and FED imposition on assemblers.

Additionally, disposable incomes have been hurt due to higher inflation this year and higher interest rates have also impacted the buying decision. Pak Suzuki Motor Company (PSMC), which has so far faced a smaller decline in comparison to its peers and avoided plant shutdowns due to high demand for the new Alto, is also expected to experience a significant shortfall in demand this month, where volumes are expected to shrink by 48% YoY. One factor could be the seasonal drop in demand towards the end of the calendar year as customers hold off purchases till January to avail next year registration with resale values in mind.

Yet another factor could be that the company increased prices of the new Alto by ~Rs80k from the start of Oct-2019. We also mention yet again that PSMC has experienced 4 quarterly losses in a row (with more to follow), despite lower volumetric declines compared to its peers, yet the other two have not yet slipped in the red zone. In other words, we believe the positivity in the market pertaining to PSMC is unjustified and we continue to hold a Sell stance on the stock.

That said, our view on INDU and HCAR is also the same, considering that the cash cushion that has been preventing their trespassing into the red zone has depleted rapidly. Moreover, given current car prices, it is incomprehensible to expect any further strong hikes considering the potential repercussions for volumes which are already at multi-year lows.

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