Equity Analysis /
Pakistan

Pakistan Autos: New year effect kicks in; PSMC falls short

    Intermarket Securities
    11 February 2020

    Pakistan’s Auto industry recorded sales of 11,901 units in January 2020, down 47% yoy and 2% mom. This takes 7MFY20 volumes to 79,404 units, down 43% yoy. The Premium category, however, defied the trend and bounced back from depressing sales in December 2019, thus moderating the decline for the sector. PSMC, on the other hand, saw weaker sales with a 36% mom decline.

    INDU and HCAR put on a strong show with sales of 4,022 units (up 72% mom but down 36% yoy) and 2,210 units (up 120% mom, though down 51% yoy) respectively. Corolla sales increased 65% mom to 3,445 units with sales of the Fortuner and Hilux increasing 97%/150% mom to 150/427 units respectively. City and Civic sales were up an astounding 112% mom to 1,878 units with sales of the BRV up 174% mom to 332 units. This is a pattern seen historically in January as cars registered in the later year fetch higher resale value. Another key reason was significant increase in marketing and sales promotions by OEMs towards the end of 2019. 

    Among PSMC models, sales for Cultus rose sharply by 85% mom, but the other models saw a steep decline. A major reason for the decline could be preemptive buying in December 2019 as PSMC had announced price hikes of about 4-5% for January. Note that PSMC sales had risen 49% mom in December (Alto sales up 25% mom).

    Tractor industry recorded sales of 2,213 units, up 92% mom but down 37% yoy. Sales of AGTL rose 530% mom, while those of MTL increased 30% mom. Sales of 2/3 wheelers increased 11% mom with a mere 3% yoy decline.

    We think the strength in January sales – particularly in the Premium category – was led mostly by seasonal factors and does not indicate a rebound in auto demand (down 47% yoy) because interest rates and inflation are still very high. We expect softness in auto sales to continue throughout 2020, in light of a potentially delayed monetary easing (historically auto demand has picked up strongly at the end of an economic recovery period). Having said that, INDU remains our top pick in the sector (June 2020 TP: PKR1,373/sh) due to its strong brand image (better margins), stronger financial position (payouts intact) and the possibility of a new model launch (Toyota Yaris).