Equity Analysis /
Pakistan

Pakistan Autos: Sales volume update

  • Auto Industry sales clocked in at c.28,000 units, more than doubled yoy, largely led by PSMC (more than tripled)

  • PSMC continued to lead the yoy growth for the sector, touching a record high c.16,000 units; MTL led the Tractor segment

  • We have a Marketweight stance on the Auto sector with a preference for INDU (TP of PKR1,416/sh)

Intermarket Securities
15 July 2022

FY22 ends on a high but administrative measures will keep demand in check

The automobile industry ended FY22 on a strong note, as sales in Jun’22 more than doubled to c.28,400 units from last year, taking FY22 sales to c.279,000 units, likely due to ramping production before the year-end and uncertainties with regards to the budget . PSMC outshined during Jun’22, more than tripling from last year, followed by INDU. However, the strong sales growth is unlikely to be sustained owing to administrative measures taken by the SBP and government aimed at curtailing demand. We therefore remain Marketweight on the sector.

  • Among INDU models, combined sales of the Premium segment cars (Fortuner and Revo), more than doubled from last year to c.1,850 units, while combined Corolla & Yaris volumes increased by a relatively softer c.20%, compared to last year. The shift in production towards the Premium segment, is likely to have resulted in the increase in Premium segment, in our view.

  • PSMC volumes clocked in at a record c.16,000 units, thrice that of the prior year,, led by triple-digit growth in all models except Cultus and recently launched Swift. Although down on a mom basis, the new Swift continued to witness decent volumetric sales of c.1,675 units. Gross margins in 2QCY22 are likely to improve amid greater sales of Cultus, Swift and Wagon R, in our view.

  • HCAR sold c.3,900 units (third highest since July 2021), led by combined Civic & City sales of c.3,400 units, on account of rolling out of both the new City and new Civic.

  • Tractor sales surged by c.50% yoy to 7,590 units (highest since April 2018), likely in anticipation of a hike in GST to 17% in the Budget. Volumes of AGTL more than doubled compared to last year to c.3,200 units (highest since March 2018), while that of MTL rose by a softer c.25% yoy.  We expect tractor sales to continue the uptrend in the coming months amid elevated farmer income and abolishment of GST in the recently announced budget, in our view.

Despite the measures taken by the SBP and government to slowdown the robust growth in FY22 in automobile sales, the sector continued to post handsome volumes in June. This is due to the long orders backlog, as these vehicles are likely to have been booked 3-4mths prior, in our view. Going forward, industry growth is likely to retract in 2HCY22 due to (i) measures aimed at reducing auto-financing (including higher interest rates), (ii) recent increase in prices, (iii) longer delivery lead times on account of supply-chain issues as the OEMs require prior permission from the SBP for imports, and (iv) increase in advance tax, as well as possible austerity measures to reduce government expenditures on car purchases. We have a Marketweight stance on the Auto sector with a preference for INDU (TP of PKR1,416/sh).