Equity Analysis /

Pakistan Autos - Sales pickup on monthly basis in Sep ’19

    Intermarket Securities
    14 October 2019

    Pakistan Auto Industry sold 11,812 units in Sep'19, down 39%yoy but up 16% mom. This brought 1QFY20 sales to 34,628 units, down 39%yoy. While economic conditions are still tough, sequential sales recovery in Sep'19 is likely due to lower working days during Aug'19 as a result of extended rains and religious holidays.

    Repeating a pattern observed in earlier months of FY20, Pak Suzuki (PSMC) depicted the least decline in its volumes during Sep'19. The company sold 8,175 units in Sep'19, down 18%yoy, credit to its recently launched model in 660cc category, Alto (launched in Jun'19). However, Alto has cannibalized Wagon-R's market as it is the worst performing model of PSMC (down 75% yoy in 1QFY20), excluding Mehran, which is being phased out. PSMC is performing better than peers due to a de facto ban on used CBU imports, which were majorly under the Economy category.

    Volumes of Honda Atlas Car (HCAR) declined the most to 1,446 units, down by 68%yoy during Sep'19. Within HCAR's variants, BR-V's sales was only 78 units, down from last month's 208 units, possibly due to its facelift launch in Oct’19. Indus Motors (INDU) sold 2,114 units in Sep'19, down 57%yoy, closely tracking HCAR's performance.

    Tractor volumes were down by 35%yoy to 3,761 units in Sep'19 due to poor farmer economics and higher prices. PAMA reported 2/3 wheeler sales dropped by a 22% yoy, which however remained stable on monthly basis.

    While sales have recovered on monthly basis, activity will remain sluggish as year end approaches, in our view. Buyers prefer to wait and get a car with new model year due to higher resale value. Moreover, given increased taxes on cars after FY20 budget, we think recovery will be gradual. We currently have an Underweight stance on the sector.