JS Securities Limited - JS Research (September 15, 2021)

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JS Securities Limited – JS Research (September 15, 2021)

September 15, 2021

Karachi, September 15, 2021 (PPI-OT): INDU: Corporate briefing session key takeaways

Indus Motor Company Limited (INDU) held its corporate briefing session yesterday to discuss FY21 results and the outlook of the company. We present key takeaways from the session.

Indus Motor Company Limited (INDU) announced its FY21 result on 27th Aug, 2021 wherein the company posted earnings of Rs12.8bn translating into an EPS of Rs163.2. Primary reasons for the increase in company’s profitability were higher volumes due to better demand of Hilux and Fortuner along with interest in the newly launch of Yaris. Company also announced a final dividend of Rs36.5/share with the result, in addition to interim DPS of Rs67/share.

Despite improvement in bottom line, the company reported only a 0.6ppts YoY increment in gross margins during FY21 because of inability to pass on the impact of higher raw material costs.

The company believes that the recent incentives by the government for the automobile sector will prove beneficial and this is the reason why it recently announced an investment of US$100mn in HEV technology. INDU will produce hybrid vehicles at its plant in Port Qasim. The company initially has planned to produce hybrid vehicles only but may move to plug in hybrid vehicles (PHEV) later.

The company apprised that it has urged the government to reduce FED on Double Cabin Pickups as well.

While auto finance has around a 33% share in total sales of the auto industry, INDU has historically had a relatively lower share from the same due to higher rural sales in the mix. The management is now working on increasing its auto finance share and the recent arrangements with HMB and HBL are also a step in this direction.

Rising commodity prices and high freight costs have been taking a toll on the gross margins of the company. If input prices don’t revert, the company will eventually have to increase car prices to pass on the impact to its end consumer. The company highlighted that persistent devaluation also makes a case for higher car prices.