Equity Analysis /

Pakistan Autos: Strong sales momentum continues in August

  • Auto sales clocked in at c.21,750 units in August, up a staggering c.85% yoy amid robust demand for PSMC vehicles

  • PSMC volumes doubled yoy, while sales for HCAR rose a sharp 40% mom amid commencement of new City deliveries

  • We prefer INDU (TP of PKR1,625/sh) and MTL (TP of PKR1,460/sh) as our top picks

Intermarket Securities
10 September 2021

In August 2021, Auto industry sales rose a staggering c.85% yoy to c.21,750 units (down c.15% mom), on account of robust demand for vehicles of PSMC (doubled yoy). On a mom basis, however, sales for HCAR cushioned the decline, being the only OEM to witness growth in August (up a sharp 40%).

Among INDU models, Yaris and Corolla volumes rose an average c.70% yoy, amid healthy sales of the Corolla. Fortuner volumes remained strong during the month (up 4.7x yoy and c.40% mom) at c.570 units. INDU recently announced plans to establish a Hybrid plant, with an estimated investment of US$100mn over the next three years. 

PSMC recorded the highest yoy growth among peers (volumes doubled), to c.12,000 units. The robust growth in sales is led by triple-digit growth in Alto, Wagon R and Cultus, while Ravi and Bolan rose an average 80% yoy. Volumes for the Swift declined c.20% yoy, which is attributed to the phasing out of the model (announced last year). According to channel checks, Cultus sales are likely to decline in the coming months amid closing of bookings of the VXL and AGS models on account of semiconductor chip shortages.  

HCAR sold c.3,200 units in August, up 40% yoy (same mom growth), led by Civic and City sales of c.2,700 units. The rise in sales is likely due to the commencement of deliveries of the new City near the end of August. City sales will lift overall volumes for HCAR amid impressive City bookings, ahead of the launch. BR-V sales surged c.80% yoy to c.500 units (low base).

Tractor industry recorded sales of c.3,300 units, up c.20% yoy despite multiple price hikes in the last 12 months (higher farm income could absorb higher prices). MTL volumes declined c.10% yoy, while AGTL sales doubled yoy to c1,300 units (low base).  We expect tractor sales to resume the uptrend in the coming months, as farmer income continues to expand amid elevated commodity prices and renewed government focus on the Agri-sector.

August witnessed a sharp yoy rise in sales largely due to the improved macroeconomic environment, where lockdowns were completely lifted in August last year. The impressive industry growth is likely to remain intact following the incentives announced in the FY22 Budget, where further incentives in the highly awaited Auto policy is a key trigger for the sector. However, the recent macro developments (sharp PKR devaluation amid worsening CAD) pose a key threat to the growth of volumes in the coming quarters, in our view. We therefore prefer INDU (TP of PKR1,625/sh) and MTL (TP of PKR1,460/sh) as our top picks.