Earnings Report /
Pakistan

Indus Motors: 3QFY22 review – surge in other income leads to earnings beats

  • INDU posted 3QFY22 EPS of PKR65.11, up c.40% yoy, beating our expectations due to greater-than-expected other income

  • GMs declined c.1.5ppt yoy (flat qoq) due to sharp PKR depreciation and elevated commodity prices, in our view

  • We prefer INDU as our top pick in the Autos sector with a June 2023 TP of PKR1,416/sh

Abdul Ghani Mianoor
Intermarket Securities
26 April 2022

Indus Motors Ltd (INDU) has reported 3QFY22 NPAT of PKR5.1bn (EPS: PKR65.11), up c.40% yoy and c.10% qoq. This takes 9MFY22 NPAT to PKR15.3bn (EPS: PKR194.56). The result beat our EPS expectation of PKR55.05, where the deviation stemmed from greater-than-expected other income (broad headline numbers in line with expectations). INDU has also announced an interim DPS of PKR26, lower than our DPS expectation of PKR27.50, which takes 9MFY22 DPS to PKR90.50.

Key result highlights for 3QFY22:

  • INDU has depicted a c.30% yoy increase in sales to PKR68.2bn, in line with our expectations, amid a c.10% yoy rise in volumes to c.18,500 units. The increase in volumes may have been due to preemptive car bookings ahead of price increases in mid-November.  

  • Gross margins have declined by c.1.5ppt yoy (flat qoq) to 7.7%, broadly in line with our expectations. The yoy decline is attributed to the sharp c.10% yoy PKR/USD depreciation, coupled with elevated commodity prices, in our view.

  • Distribution expenses have decreased by c.5% yoy despite higher volumetric sales, while Admin expenses have risen a sharp c.40% yoy. We await the availability of quarterly accounts for further clarity on both.

  • Other income has more than doubled yoy to PKR3.2bn (PKR28.75/sh net of tax). This is potentially due to greater cash balances amid higher bookings and lead times, in our view. Recall that INDU had cash and short-term investments of c.PKR98bn (c.PKR1,255/sh) by the end of 2QFY22.

This is a decent result from INDU, even after adjusting for the abnormally high other income. The sharp price increases in the December quarter have cushioned GMs against cost pressures, but have not resulted in improvement. In the coming quarter however, margins will be under pressure despite price increases in March as the new prices will be effective from 1QFY23, in our view. This coupled with expectations of weaker demand amid higher interest rates, may further pressure margins, in our view. Having said that, the announcement of new models (especially the highly awaited HEV segment) may provide some support, in our view, while strong farmer economics will reinforce sales for INDU. We prefer INDU in the Auto OEM sector with a June 2023 TP of PKR1,416/sh.