Elixir Securities Limited – Elixir Insight

Karachi, July 12, 2018 (PPI-OT): Automobile Assemblers – Passenger Cars Post 17%YoY Growth in FY18

Passenger cars have shown a robust growth of 17%YoY during FY18 on the back of rising income level, cheap car-financing, election year demand and blossoming ride-hailing segment. However, Passenger cars sales fell by 14%MoM during Jun-18 due to Ramadan effect and Eid holidays.

Amongst the assemblers, HCAR showed strongest growth during the year (up 31%YoY) led by BR-V sales (302%YoY) due to low base year. PSMC registered growth of 26%YoY mainly due to sharp growth in WagonR/Mehran (65%YoY/22%YoY). While INDU posted a moderate growth of 5%YoY since focus shifted from passenger cars to SUVs (Fortuner/Hilux: 204%YoY/27%YoY).

During the year, Tractors and pickups grew by 29%YoY and 22%YoY while Jeeps recorded a phenomenal growth of 264%YoY as Election led demand came in full swing.

We maintain Underweight stance on the sector on the back of weakness in PKR, expected slowdown in demand, interest rate liftoff, restriction of vehicle purchase by non-filers, and upcoming entry of new players.

Economy Segment Drives Passenger Cars Sales: As per the latest Automobile Sales numbers released by Pakistan Automotive Manufacturers Association (PAMA), Passenger Car sales grew by 17%YoY to 216,786 units. The reason for strong demand can be attributed to rising income level, cheap car-financing, election year led demand and strong growth in ride-hailing market.

Coming to month wise data, Passenger car sales fell by 14%MoM to 15,652 units owing to Ramadan effect and Eid holidays. Recall that Automobile Assemblers due to production capacity constraints have been working in double shifts in normal days; however in Ramadan, working hours were reduced thus dragging down production. However, passenger cars sales were up 22%YoY due to low base-year as Ramadan came in June for entire month last year.

(Please refer to the enclosed table for detailed sales numbers)

HCAR Outperformed Led by BR-V: Honda Atlas Cars Ltd. (HCAR) witnessed highest growth of 31%YoY amongst its peers and sold 51,494 units during the year. Overall sales growth was mainly driven by jump in BR-V sales by 302%YoY to 8,684 units. Note that HCAR launched BR-V in April-17 and thus faster sales growth is attributable to both low base effect as well as consistence performance during FY18. Besides popularity of new Civic models drove Civic/City sales by 16%YoY to 42,810 units. During the month, HCAR posted a decline of 15%MoM but grew by 20%YoY.

Meanwhile automobile sales for Pak Suzuki Motors Ltd. (PSMC) / Indus Motors Company (INDU) also showed growth of 26%YoY/5%YoY to 144,070/63,068 units, respectively. The growth in PSMC can be attributed to booming Wagon-R sales to 29,206 units (up 65%YoY) as ride-hailing segment picked momentum.

INDU’s modest growth can be attributed to 2%YoY dip in Corolla sales to 51,412 units as the company’s focus shifted towards high margin SUVs due to prevailing capacity constraints. As such, Hilux/Fortuner sales grew by 27%YoY/204%YoY to 7,470/4,186 units. During the month, PSMC/INDU posted decline of 11%MoM/23%MoM but were up 15%YoY/26%YoY.

Jeeps’ Unfolding 264%YoY Growth in FY18: During the year, Jeeps sales clocked in at 12,870 units (up 264%YoY) as BR-V received positive response from market while Fortuner demand picked up on the back of Election campaign spending.

FY18 Sales Remain Strong for Tractors and Pickups: Tractors sales increased by 29%YoY to 70,887 units in FY18. Within this segment, Al-Ghazi Tractors Ltd. (AGTL) outperformed with a growth of 40%YoY during FY18, taking its market share to 39% for FY18. The Ramadan and religious festive effect however dragged down sales of the segment by 42%MoM.

Pick-ups sales increased 22%YoY in FY18 owing to impetus from the ongoing CPEC construction and expected subsequent transit activity. During the month, pick-up sales declined by 32%MoM.

Maintain Underweight: We maintain our skepticism on the sector as incumbent assemblers are bound to witness margin attrition, loss in pricing power and market share decline amidst a flurry of upcoming new players, interest rate hikes and ongoing PKR depreciation. Hence we maintain Underweight stance on the sector.