Equity Analysis /
Pakistan

Pakistan Autos: Sales crossed 20,000 units mark for first time in two years

  • Auto sales surged to a 24 month high, crossing the 20,000 units level in March 2021 to 20,813 units (up 27% mom)

  • The uptick in sales in sales was led by PSMC (most units added), followed by INDU (highest mom growth)

  • We prefer INDU (TP PKR1,458/sh), and PSMC (TP PKR450/sh), as our top picks

Intermarket Securities
13 April 2021

In March 2021, Auto industry sales surged to a 24-month high, crossing the 20,000 units level to 20,813 units (up 27% mom). This is largely attributed to the smoothening of supply-chain disruptions, leading to an uptick in car deliveries, in our view. While PSMC added most units to total industry sales, INDU showed the highest mom growth in sales.

  • Among INDU models, Yaris volumes rose by 29% mom, but sales of the remaining premium models rose by an average 86% mom. We believe that the ramping up of production during 3QFY21 has led to such a sharp improvement. Notably, INDU has achieved the highest level of production since March 1993.   

  • HCAR sold c.3,150 units in March, with combined sales of Civic and City of 2,603 units, up 19% mom. BR-V sales witnessed a sharp 2.3x mom rise to 550 units. Sales have been upbeat despite the delay in anticipated launch of a new City model.

  • PSMC's Alto sales rose 12% mom  to 4,745 units (highest monthly sales since Sep 2019), while the sales of Wagon R rose by a sharp 55% mom. Cultus and Bolan sales increased by an average 10% mom, where only Ravi sales declined mom. We expect PSMC sales to continue the present momentum in the remainder of CY21, where the impact of new competition is likely to remain moderate, in our view.  

  • Sales of Hyundai clocked in at 677 units in March (up a soft 4% mom), led by 12% mom rise in Tucson sales to 613 units. Sales of the H-100 Porter, however, declined by 39% mom to 64 units. Volumes of the recently launched sedan Elantra clocked in at 46 units in its first month of sales (though 248 units were produced).

  • Tractor industry recorded sales of 5.531 units, up 24% mom. AGTL sales rose 40% mom to 2,012 units (low base), while that of MTL rose 17% mom to 3,519 units. We expect tractor sales to resume the uptrend in the coming months as farmer income continues to expand. MTL sales may also benefit from an increase in exports.

March witnessed a rebound in sales following a seasonal decline in February

We highlight that industry sales averaged c.12,000 units prior to the pandemic, so present growth is not just attributed to a low-base effect (Covid-19 lockdown was imposed in late March 2020). Low interest rates and new models from both new entrants and incumbent OEMs will maintain the robust demand for cars, in our view. However, the impact of the present disruption in global supplies of semiconductor chips may come into play in the coming months (presently, it is still uncertain as to what extent local OEMs will be affected). We have an Overweight stance on both the Auto and Tractor OEMs, with Buy rating on all the scrips under coverage. We prefer INDU (TP of PKR1,458/sh), and PSMC (TP of PKR450/sh), as our top picks.