Equity Analysis /

Pakistan Autos: FED impact further dented volumes in April 2019

    Ahmed Raza
    Ahmed Raza

    Investment Analyst

    Intermarket Securities
    13 May 2019

    Pakistan’s auto industry sold 19,437 units in Apr’19, down 24%yoy/15%mom, taking the 10MFY19 decline to 6% yoy. Despite the removal of the non-filer ban, the 10% Federal Excise Duty (FED) on cars above 1,700cc significantly impacted volumes, particularly for HCAR. Part of the decline is alos due to a high base (monthly record high posted in Apr’18).

    Volumes of Honda Atlas Cars (HCAR) plunged by 38%yoy in Apr’19, the most among peers. More importantly, its City/Civic numbers dropped by asteep43%yoy in Apr’19, due to the above mentioned FED impact. We also think buyers have delayed their purchases, as there were reports of the government removing the FED, soon after it was imposed. Pak Suzuki (PSMC) sold 10,789 units, down 27%yoy where a major decline in commercial vehicle sales (Ravi and Bolan down 43% and 33% yoy, respectively, during Apr’19) corresponds to weak manufacturing activity. Mehran volumes were also down by 41%yoy as the model is being phased out while its replacement, Alto, will be out only in Jun’19. On other hand, Indus Motor’s (INDU) Corolla posted a 6%yoy growth in Apr’19. However, the FED was also applicable on Fortuner, where volumes declined by 63%yoy.

    Tractor volumes declined by 32%yoy to 5,430 units in Apr’19 due to weak agricultural fundamentals and slowdown in construction activity. 2/3 wheelers sales, however, were down by a moderate 4%yoy in Apr’19.

    Weak auto sales may continue in the immediate term, given the FED impact and lower working days (religious holidays ahead) on top of a tough macroeconomic environment. However, we think removal of the 10% FED appears more likely now given the total tax collection (FED plus sales tax) will be flat if volumes decline by c.45%. Until this happens, however, we have a cautious stance on the sector.