Equity Analysis /
Pakistan

Indus Motors: Q3 FY 20 analyst briefing takeaways

  • INDU posted Q3 FY 20 NPAT of PKR2,679mn (EPS: PKR34.09) and announced a third interim dividend of PKR10.0/sh

  • According to management, the response from consumers for Yaris was overwhelming and much higher than expected

  • Following the country-wide lockdown, industry sales have been negligible during March-April

Intermarket Securities
5 May 2020

INDU posted 3QFY20 NPAT of PKR2,679mn (EPS: PKR34.09), down 20%yoy, while up a staggering 172%qoq. This took 9MFY20 earnings to PKR4,984mn (EPS PKR63.41), down 51% yoy. INDU also announced a third interim dividend of PKR10.0/sh (taking 9MFY20 payout to PKR23/sh).

Key highlights:  

  • The company sold 11,125 units in 3QFY20, down 34% yoy. Industry sales of passenger cars & LCVs fell 49% yoy, while the economy segment fell by 7% yoy due to the launch of new Alto by Pak Suzuki (PSMC). INDU’s market share remained flat at 21% in 9MFY20. The newcomer Kia Lucky Motors (KLM) took about 4.9% share of the market.
  • Price increases (on account of PKR depreciation, higher taxes and higher interest rates) are attributed for the sharp decline in volumetric sales on a yoy basis.
  • Gross margins rose by 4ppt yoy to 12.1% in 3Q due to an increase in volumes and price hike in January amid mostly stable PKR. INDU also resorted to price discounts at the end of 3Q in order to sell out the remaining inventory of the discontinued 1,300cc Corolla variants and to secure its market share.
  • Other income rose 109% qoq due to a significant increase in the fund size, which was itself led by a cash inflow due to a rise in customer advances and earnings on money market instruments.

Outlook: 

  • Following the country-wide lockdown (in Sindh since 24 March), industry sales have been negligible during March-April, as production has been shut down in compliance with the lockdown. INDU management, however, acknowledged that some dealers may have operated partially to sell out the existing inventory.
  • Management acknowledged the untimely soft launch of the new 1,300cc model called Yaris. It replaces the previous 1,300cc Corollas (both the XLi and GLi) and will have the same localisation level as that of the cars it has replaced. According to management, the response from consumers was overwhelming and much higher than expected. They expect the Yaris brand name to be as popular as its predecessor, due to the Toyota badge.
  • Management did not comment on the impact of the pandemic on the Auto industry as it is uncertain what a post Covid-19 environment will look like. The main focus of the management is now on cash-flow management and conservation.
  • INDU announced a price hike on 14 April due to the sudden depreciation of the PKR. The management hinted that this increase may be reversed in the next couple of weeks, due to the recent appreciation. The management expects the Sindh Government to ease the lockdown after Eid, following an earlier easing expected in Punjab.
  • Bolstered by its financial strength, management will look to support its dealer and vendor network, to protect the industry as the vendors play a vital role in the localisation of cars.
  • Regarding the Electric Vehicles policy presently being formulated by the government, under which lower taxes will be imposed on electric vehicles, INDU opines that a policy – that focuses on local production rather than concessions on CBU imports – will be more fruitful. Exact details of the policy are still awaited.