Equity Analysis /
Pakistan

Pakistan Autos: Ending the year on a high note

  • Auto Industry sales clocked in at c.27,000 units (nearly doubled yoy), taking CY21 volumes to c.237,000 units

  • PSMC led the charge for the sector amid sharp rise in Alto sales, recording record monthly sales, followed by HCAR

  • We prefer both INDU (TP of PKR1,475/sh) and MTL (TP of PKR1,200/sh) as our top picks

Intermarket Securities
11 January 2022

In December 2021, Auto industry sales nearly doubled yoy to 27,000 units (up c.45% mom), ending CY21 on a strong note. The surge in sales was led by HCAR and PSMC (triple-digit yoy growth), while in terms of absolute volumes, PSMC led the charge sequentially with c.15,500 units sold (highest-ever monthly sales). Overall industry sales clocked in at c.237,000 units in CY21, up a staggering c.90% yoy.

  • Among INDU models, volumes for the Premium segment cars (excluding Yaris) increased by an average c.55% yoy; while Yaris sales rose by a relatively moderate c.35% yoy to c.2,000 units, likely due to a high base effect and ramping up of production of other models, in our view.  

  • PSMC sales clocked in at a record-high c.15,500 units, more than doubling yoy, largely attributed to the sharp rise in Alto sales (up c.3x yoy). According to channel checks, the rise in Alto sales is due to the ramping up of production, following halts in November (fuel-pump issue). PSMC is reported to have cleared deliveries of Alto up to the first week of January, before the New Year. However, sales of Cultus and Ravi declined by an average c.20% yoy likely due to high base effect and production constraints (focus on Alto and part shortages), in our view. CY21 volumes for PSMC clocked in at c.122,800 units (more than doubled yoy).     

  • HCAR sold c.4,700 units in December, up c.2.7x yoy, led by Civic and City sales of c.4,400 units, on account of rolling out of the new City (pre-booked orders), while BRV volumes grew by a handsome c.30% yoy (albeit from a low base) to c.300 units, in our view.

  • Tractor industry recorded sales of c.4,500 units, up a handsome c.35% yoy, led by the c.3.4x yoy increase in AGTL volumes (low base) to c.1,200 units. MTL sales grew c.10% yoy to c.3,300 units (second highest monthly sales FY22td). We expect tractor sales to resume the uptrend in coming months amid elevated farmer income.  

December saw a healthy and sustained yoy increase in sales amid inflow of orders mainly in the Economy segment (followed by Premium segment), post-Budget and improved macroeconomic environment following the easing of lockdowns last year. However, the robust industry growth is likely to retract in the coming months amid (i) measures aimed at reducing auto-financing (including rising interest rates), (ii) sharp hike in car prices, (iii) increase in prices FED and other taxes in the Mini Budget and (iv) longer delivery lead times on account of supply chain issues (semiconductor chips and other parts). We are therefore Marketweight on the Auto sector, while Overweight on the Tractor sector, and prefer INDU (TP of PKR1,475/sh) and MTL (TP of PKR1,200/sh) as our top picks.