Equity Analysis /

Pakistan Autos - Handsome sales growth continues but early signs of slowdown

  • Auto sales clocked in at c.21,000 units in October, up a sharp c.50% yoy amid healthy demand for PSMC vehicles

  • PSMC volumes grew c.70% yoy, while sales for INDU rose 10% mom amid launch of Special Edition Corolla 1.6 variant

  • We prefer INDU (TP of PKR1,500/sh) and MTL (TP of PKR1,460/sh) as our top picks

Intermarket Securities
11 November 2021
  • In October 2021, Auto industry sales maintained the strong growth momentum, rising a staggering c.50% yoy to c.21,000 units (albeit down c.5% mom), on account of robust demand for vehicles of PSMC, up c.70% yoy (although down 8% mom). On a mom basis, however, sales for INDU led the industry (up 10% mom), largely due to healthy Corolla sales, following the launch of 1,600cc Altis Special Edition (SE).

  • Among INDU models, Fortuner and Corolla volumes recorded triple-digit yoy growth in sales, while Yaris and Hilux sales declined by 33%/26% yoy respectively (higher base effect in October, post-launch in May 2020). Hilux and Revo volumes are likely to decline in the coming months due to the closure of bookings, in our view.

  • PSMC recorded the highest yoy growth among peers (up c.70% yoy), to c.10,200 units. The robust volumetric growth in both Alto and Cultus (average 70% yoy) led to the increase in overall sales of PSMC. Ravi sales grew c.5x yoy (low base effect) due to relatively lagged rise in demand for LCV’s post-lockdown, in our view. The phasing out of Swift led to a c.90% yoy decline in its sales (model phase out announced last year). According to channel checks, Cultus and Alto sales are likely to decline in the coming months amid closing of bookings of certain variants on account of semiconductor chip shortages, where we highlight delivery times close to five months for various models.   

  • HCAR sold c.2,650 units in October, up c.20% yoy, led by Civic and City sales of c.2,650 units, on account of rolling out of new City (pre-booked orders), while BRV recorded the lowest ever monthly sales of 7 units since launch (excluding April 2020). 

  • Tractor industry recorded sales of c.5,350 units, up a handsome 20% yoy, led by the c.25% yoy increase in AGTL volumes (albeit, low base) to c.1,850 units. MTL sales grew c.15% yoy to c.3,500 units (highest monthly sales FY22td). We expect tractor sales to resume the uptrend in the coming months, as farmer income continues to expand amid elevated commodity prices and renewed government focus on the Agri-sector.

October saw sustained yoy rise in sales largely due to the price reductions announced in July (post-Budget FY22) and improved macroeconomic environment following the easing of lockdowns last year. The impressive industry growth is likely to retract in the coming months, however; (i) measures aimed at reducing auto-financing (including rising interest rates), (ii) sharp hike in car prices (announced over the last couple of days), and (iii) longer delivery lead times on account of supply chain issues (semiconductor chips and other parts), in our view. We are therefore Marketweight on the sector, and prefer INDU (TP of PKR1,500sh) and MTL (TP of PKR1,460/sh) as our top picks. We highlight our preference for INDU emanates from timely procurement of raw materials, relatively lower share of auto-financing due to higher rural contribution and recent announcement of HEV plant.