Equity Analysis /

Pakistan Autos: July 2020 – Industry sales revert to January 2020 levels

  • The auto Industry sustained the upwards sales momentum from June’s sales, rising a sharp 33% mom to 11,659 units

  • The premium car makers (INDU & HCAR) witnessed a sharp increase on both a yoy and mom basis as compared to that of PSMC

  • We have an Underweight stance on the OEM sector due to the 53% rally in stock prices since May; Neutral on INDU and MTL

Intermarket Securities
11 August 2020

In July 2020, Auto industry sales of 11,659 units (down a modest 7% yoy) sustained the upward momentum from June's sales of 8,753 units (up 33% mom). This may potentially be due to the progressive easing of lockdown conditions and improving macroeconomic indicators, in our view.  Both premium carmakers, INDU and HCAR, saw a sharp increase in sales both on a yearly and monthly basis, with INDU sales up 68% yoy / 60% mom and HCAR sales up 46% yoy / 23% mom. PSMC sales were up 28% mom to 4,991 units, while down 40% yoy.

INDU sold 1,528 units of Corolla (up 79% mom), while sales for the highly-awaited Yaris jumped to 1,883 units (62% mom). Their combined sales were equal to that in January. Hilux sales rose a modest 11% mom (up 36% yoy) to 486 units. Fortuner sales were up a staggering 87% mom and 97% yoy to 146 units. The relatively stronger performance by INDU could partly be attributed to a low base last year (imposition of FED on below 1,800cc cars in FY20 Budget).

HCAR sold 2,467 units in July, with Civic and City sales of 2,210 units (up 52% yoy and 20% mom). BR-V sales increased by a soft 6% yoy, while up 57% mom to 257 units in June. HCAR sales may reflect the pickup in urban demand post lockdown. 

PSMC's Alto and Cultus sales rose 30% mom each (while down 53% yoy / 11% yoy, respectively). Wagon R sales, rose a decent 19%, while also declining on a yoy basis by 33%. PSMC recently announced price increases for the Bolan and Ravi by an average of c.3.3%, which is likely aimed at passing on the PKR depreciation of c.3% since April.  

Tractor industry recorded sales of 3,606 units, up 17% yoy, while down 32% mom. Sales for AGTL saw a 27% mom decline (up 25% yoy) to 1,401 units, while those of MTL declined by a sharper 35% mom to 2,205 units (up 14% yoy). The decline in tractor sales is majorly because of the anticipation of GST reduction. Hence, tractor sales will likely pick up in August as the GST subsidy was formally implemented by end of July (GST reduced from 5% to 0%).

Industry sales have almost reverted to the January 2020 level of 11,964 units (only 3% lower). Looking ahead, we believe sales to slightly normalize from August. However, the sharp monetary easing of 625bps in 2020 so far can lift auto-financing earlier than expected, in our view. In this backdrop, more new models besides Toyota Yaris (potentially new Honda City) could serve to attract consumer interest. We have an Underweight stance on the OEM sector because we think that the 53% rally in stock prices (since May) have priced in a very sharp recovery in sales, in our view. We are Neutral on INDU with a TP of PKR1,273/sh and MTL (TP of PKR902/sh) in the tractors space.