Equity Analysis /
Pakistan

Oct’22 - Partial resumption of production has led to improved sales numbers

  • Latest automobile sales show some relief post resumption in production; the MoM numbers were up 22% to 13,369 units.

  • HCAR’s plant was shut down for a longer period as compared to peers, the company has witnessed a softer 11% jump MoM.

  • MTL outperformed AGTL in Oct’22, despite AGTL capturing c.50% market share in 1QFY23.

Intermarket Securities
14 November 2022

Latest automobile sales figures show some relief post the resumption in production; sales are down by 36% YoY, the MoM numbers were up 22% to 13,369 units. This is a similar number to the post pandemic lockdown in Sep’20. Despite the prevailing auto-parts import curtailment measures on CKD units, plant production resumption in Oct’22 has led to the improved production of 13,021 units (down 36% YoY but up 39% MoM). That said, elevated interest rates, PKR volatility and hampered production will likely continue to add to the sector’s troubles in the ongoing year. We continue to remain Marketweight on the sector, with a preference for INDU.

  • The prevailing CKD import curbs have continued to plague the Auto industry and ongoing slump in sales in 4MFY23 (down 36% YoY). Nevertheless, PSMC and INDU have resumed operations post temporary plant closures, leading to sequentially improved sales and production numbers. However, HCAR’s plant was shut down for a longer period as compared to peers, which may explain why the company has witnessed a softer 11% jump in MoM sales.

  • In the near-term, we believe that the passenger vehicles production will likely continue to remain hampered, owing to the sluggish release of CKD kits, necessitated by the need to ease pressure on both the PKR and foreign exchange reserves. Therefore, the OEMs are likely to continue operating on single-shift production in near-term as well, in our view.

  • The recent stability in the PKR is likely to keep prices intact. However, further PKR appreciation may result in price cuts. Margins are likely to remain under pressure, owing to lower production, phased price hikes and PKR volatility, in our view.         

  • With regards to tractor sales, MTL outperformed AGTL in Oct’22, despite AGTL capturing c.50% market share in 1QFY23 (historically MTL’s share has been north of 60%). The reduction in volumes for AGTL is likely due to slower deliveries owing to the floods followed by production cut and possible delays in GST refunds.

Moving forward, we believe that overall slowdown in demand coupled with supply issues propelled by i) reduction in auto-financing (elevated interest rates), ii) decrease in purchasing power amid inflationary pressures, PKR slippage and price hikes, and iii) ongoing production concerns may extend delays in car deliveries. We continue to remain Marketweight, despite the underperformance of the IMS Auto sector by c.15% over KSE-100 Index in 4MFY23. Selectively, we have a preference for INDU (TP of PKR1,280/sh).