Equity Analysis /
Pakistan

Pakistan Autos – Sep’22 - Volumes continue to dip on production woes

  • Automobile sales in Sep’22 indicate a further slump in volumes, continuing the down trend from the previous months

  • Ongoing import curtailment measures on imports of CKD kits remain the major factor for the decline in deliveries

  • HCAR witnessed the sharpest decline in sales; AGTL once again outperformed in the tractor segment

Intermarket Securities
12 October 2022

Latest automobile sales figures show a continued downtrend in demand to the tune of 51% YoY (down an additional 6% MoM) to c.10,950 units. This is a similar number to the pandemic lockdown in Jun’20 and is largely attributed to the ongoing production woes. Specifically, the prevailing auto-parts import curtailment measures on CKD units and resultant plant closures during Sep’22 (and in Oct’22td) have led to the decline in production as well to c.9,350 units (down 59% YoY and 27% MoM). Elevated interest rates, PKR volatility and hampered production will likely continue to add to the sector’s troubles in the ongoing year. We continue to remain Marketweight on the sector, with a preference for INDU.

  • The prevailing CKD import curbs have once again proven to be the major factor behind the ongoing slump in sales in 1QFY23 (down 50% YoY) as both PSMC and INDU had non-production days (temporary plant closures). HCAR witnessed the sharpest decline in sales (65% YoY), due to dismal BR-V sales.

  • In the near-term, we believe that production will continue to remain hampered, owing to the sluggish release of CKD kits, necessitated by the need to ease pressure on both the PKR and foreign exchange reserves. Therefore, the OEMs are likely to continue operating on single-shift production for the next quarter as well, in our view. 

  • The recent appreciation in the PKR is likely to keep prices intact. However, further PKR appreciation may result in price cuts. Margins are likely to be under pressure in 1HFY23, owing to lower production, phased price hikes and PKR volatility, in our view.         

  • With regards to tractor sales, AGTL once again outperformed MTL by 873 units in Sep’22, capturing c.50% market share in 1QFY23 (historically MTL’s share has been north of 60%). The reduction in volumes for MTL is likely due to slower deliveries owing to the floods and possible delays in GST refunds.

Moving forward, auto industry sales are likely  to continue the downward trend, owing to i) reduction in auto-financing (elevated interest rates), ii) overall demand slowdown due to decrease in purchasing power amid inflationary pressures and price hikes, and iii) ongoing production concerns will exacerbate delays in car deliveries. We, therefore, continue to remain Marketweight, with a preference for INDU (TP of PKR1,416/sh).