Equity Analysis /
Pakistan

Indus Motors: 4QFY21 analyst briefing takeaways

  • With the overall surge in industry sales, INDU’s market share in FY21 rose to 23%, up 2ppt yoy, largely due to the Yaris

  • According to the management, INDU is unlikely to be significantly impacted by the global semiconductor chip shortage

  • We flag INDU as our top pick in the sector, with a Buy rating (TP of PKR1,625/sh), where HEV assembly may spur demand

Intermarket Securities
14 September 2021

INDU posted 4QFY21 NPAT of PKR4.4bn (EPS: PKR56.15), up 22% qoq (c.44x yoy, distorted due to Covid-19 lockdowns), due to a 3ppt qoq rise in gross margins and 15% qoq higher other income. INDU also announced a final dividend of PKR36.5/sh. This took FY21 NPAT to PKR12.8bn (EPS: PKR163.21), and DPS to PKR103.5/sh.

Key highlights for 4QFY21:        

The company sold c.14,750 units (CKD and CBU combined) during 4Q; total sales during FY21 clocked in at 57,731 units, doubling yoy. Total industry sales during FY21 rose by c.75% yoy, led by a surge in demand following the lockdown amid sharp economic recovery.

Despite the 12% qoq decline in volumes, gross margins rose c.3ppt qoq on account of positive currency movements prior to the quarter (as per management). The overall rise in sales in FY21 is attributed to the impressive demand for Yaris, and sequential facelifts of other variants (Fortuner, Hilux and Corolla).   

Guidance for future sales and profitability      

  • In light of the recent PKR/USD devaluation of c.6.7% FY22td, elevated commodity rates and port congestions globally (resulting in 2-3 week delays and air shipments), the company indicated car prices are likely to be increased soon. INDU is presently absorbing all cost escalations.    

  • With regards to recent newspaper clippings on car price controls on the Auto sector, the management believes the fixing of car prices is unlikely to occur (due to free-market) and price increases are a question of when, not if.

  • As per the management, INDU is not facing any issues caused by the current global shortage of semiconductor chips, unlike peers, which are facing production delays due to the shortage. This is due to the negotiations with Toyota Japan for the timely procurement of chips.

  • The management currently believes that the company is unlikely to face any major delays in production for at least the next six months (expects maximum delays of 5-7% of commitments until January 2022). However, if supply chain constraints do arise, the company is likely to allocate production as per consumer demand. 

  • INDU is presently operating on a double-shift basis with overtime in order to cater to the robust demand for Toyota cars. Yaris is presently being delivered within 30-45 days, while the other models have lead times of 4-5 months.

  • Following the announcement of incentives in the FY22 Budget, INDU recently announced plans of investing US$100mn over the next three years for the local production of Hybrid vehicles. INDU did not comment on further details regarding hybrid model launches; whereas the company will enhance plant capacity to cater to the assembly of HEVs.   

  • INDU recently announced a new low-cost car finance scheme with Habib Metropolitan Bank (Insta Car Ijarah), which has received an encouraging response so far. With regards to urban/rural sales, the market share is close to 50%/50%, translating into lower auto finance sales relative to the industry average.

FY21 witnessed a sharp recovery in both profitability and volumes due to the macroeconomic rebound following easing of the Covid-19 lockdowns. The robust demand for autos is likely to be sustained, propelled by incentives announced in the FY22 Budget. However, the present macroeconomic developments (especially the external account and PKR weakness) pose a key threat to the growth of volumes in the coming quarters, in our view. We flag INDU (TP of PKR1,625/sh) as our top-pick in the sector.