JS Securities Limited – Morning Briefing

Karachi, December 07, 2018 (PPI-OT): Auto sales likely to decline 12% YoY in Nov-2018

Auto sales (Passenger cars and LCVs) are expected to decline by 12% YoY during Nov-2018.

Pak Suzuki (PSMC) and Honda Atlas (HCAR) are expected to face reduction in volumes of 15% YoY and 21% YoY, respectively during November.

Indus Motor Company (INDU) is expected to stand out from the pack, however, with a meagre 3% YoY growth in volumes on the cards, mainly on the back of higher Corolla sales.

For tractors, the situation could actually be worse, with volumetric plunges of 37% YoY and 29% YoY expected in Millat Tractors (MTL) and Al-Ghazi Tractors (AGTL), respectively.

Auto sales expected to fall 12% YoY in Nov-2018

Auto sales (Passenger cars and LCVs) are expected to decline by 12% YoY during the month of November to ~18,600 units. Sequentially, auto sales are expected to drop by 25% MoM, whereas cumulatively for 5MFY19, the contraction is expected at ~4% YoY. The expected recession in volumes has been long overdue as mentioned in our earlier reports, given the surmounting negatives for the sector, particularly price increases amid rupee weakness and the non-filer restriction. Already, the auto companies have increased prices on at least four instances since the rupee started weakening in Dec-2017, whereas the latest update on this aspect comes via a Honda Atlas (HCAR) notification.

In this notification sent to its dealer network, the company has conveyed that the upcoming Jan-2019 price increase will now be applicable on Dec-2018 deliveries, providing yet another indication of the OEM’s weakening position now. For Pak Suzuki (PSMC) the problem is equally challenging (if not more so) considering its price-sensitive customer base (the company did not increase prices of its less costly variants in the latest instance).

OEMs not in an enviable position

PSMC and HCAR are expected to face reduction in volumes of 15% YoY and 21% YoY, respectively during November. Other than aforementioned points, decline production of Mehran amid its phase-out before discontinuation in Mar-2019 and slowing demand from online app customers are expected to weigh down on volumes for PSMC. For HCAR, slow demand for BR-V plus the recent interest rate hikes are anticipated to create a further dampening impact on volumes.

Indus Motor Company (INDU) is expected to stand out from the pack, however, with a meagre 3% YoY growth in volumes on the cards, mainly on the back of higher Corolla sales. Looking further ahead, Dec-2018 could actually be worse for the car makers if we include the impact of annual maintenance production shutdowns to further rupee depreciation in the latest quarter. For tractors, the situation could actually be worse, given that the recent price increases have led to strong protests from the farmer community, with volumetric plunges of 37% YoY and 29% YoY expected in Millat Tractors (MTL) and Al-Ghazi Tractors (AGTL), respectively.