Equity Analysis /

Pakistan Autos – Sales dip below 10k units in November amid economic slowdown

    Intermarket Securities
    11 December 2019

    Pakistan Auto Industry sold 9,840 units in Nov'19, down 44%yoy and 10%mom. This took 5MFY20 sales to 55,400 units, down 43%yoy. As expected, sales continue to slide down on a monthly basis too, due to lower car sales towards year-end.

    Following a pattern observed since Jul’19, Pak Suzuki’s (PSMC) volumes suffered the least yoy decline due to presence of a new model, Suzuki Alto and de facto ban on used car imports (which were mainly under Economy segment). In Nov’19, the company sold 5,846 units, down 31%yoy, with half of the volumes coming from Alto. Volumes of Honda Atlas (HCAR) declined the most by 62%yoy at 1,303 units during Nov’19. The major market for HCAR is urban customers, where a higher share of auto financing in the past is impacted by increased interest rates. Indus Motors (INDU) sold 2,640 units in Nov’19, down 52%yoy. However, unit sales are up 6%mom as Corolla sales recovered by 10% on a monthly basis. 2,172 units sales of Corolla are the highest in a month during 5MFY20, potentially due to aggressive marketing and discount offers by the company. News reports are also suggesting that INDU might introduce another Sedan, Toyota Yaris in 1,300cc category, which will replace Corolla Xli/Gli.

    Tractor volumes were down by 52%yoy to 1,818 units in Nov'19 amid lack of government incentives for the agricultural sector. Plant of Millat Tractors (MTL) will remain closed for almost a month, starting from today, as per stock exchange filing, This reflects that volumes are unlikely to recover in the near term. However, PAMA reported 2/3 wheeler sales increased by 2%yoy in Nov19, depicting resilience in this segment despite the economic downturn.

    Auto sales are expected to pick up from Jan’19 when new year effect may give some push to sales (as replacement value is dictated by model year). Beyond that, however, we think the recovery will be moderate due to increased taxes in a car’s price and relatively higher interest rates (despite an expectation of cuts in interest rates). We have a Market-weight stance on the sector at current market prices.

    Risks: (i) PKR depreciation against Yen and US$, (ii) adverse regulatory measures and (iii) competition from new players.