AKD Securities Limited Equity Research – Daily Report

Karachi, December 12, 2017 (PPI-OT): Autos: Nov’17 sales numbers are nothing to complain about

Total automotive industry sales moved -9.6%MoM/+17.6%YoY for Nov’17 with total industry sales clocking in at 21,765 units, taking cumulative 11MCY17 sales to 229,085 units (+18.6%YoY). Adhering to the trend of seasonal weakness from the month of November, negative movement of -11.2%/-2.1%/-4.4%/-60.5%/-8.1% for Passenger Cars/LCVs and Pickups/ Trucks/Buses/Tractors was witnessed. Running a basic time series analysis of MoM moves between Nov vs. Oct between CY11-16 shows an average total industry sales unit dip of -2.2%MoM, which falls to -7.1% ex CY16 (Rozgar scheme year).

Category-wise declines were led by the 1000CC category (-29.5%MoM/+31.4%YoY) followed by 800CC and below (-12.3%MoM/+16.8%YoY) while the 1300CC+ segment sales sustained momentum (+1.0%MoM/-5.1%YoY). Additionally, for the outgoing month INDU/PSMC/HCAR reported their capacity utilization at 118.8%/91.5%/108.4%, taking the 11MCY17 capacities to 112.4%/87.7%/95.8% for SPLY. We remain upbeat on INDU’s prospects for passing on any price hikes (following recent PkR weakness), while capacity expansion raises the OEMs ability to meet any escalation in demand.

INDU: November sales were up by +4.5%MoM mainly due to the Corolla sales rising +7.6%MoM to 4,537 units. Fortuner/Hilux sales dampened -17.2%/-6.0%MoM, taking 11MCY17 sales for both to 2,578/5,373 units, up +409%/+11%YoY. Overall INDU sales experienced a minor slip of -0.6%YoY/-0.6%YoY for Nov’17/11MCY17, despite a healthy order book for all variants presenting a case of capacity utilization crest (INDU capacity utilization for 11MCY17 at 112%).

PSMC: Sales for the outgoing month for the incumbent fell 17.7%MoM, mainly from failing to keep-up Wagon-R sales which deteriorated -39.2%MoM. This may indicate that the previous month’s surge could be driven through ad-hoc fleet sales orders instead of organic retail demand. All variants offered experienced digression on MoM basis with sales for Swift/Cultus/Mehran/Bolan/Ravi down -8.6%/-6.5%/-9.1%/-18.8%/-7.6%MoM.

HCAR: Sales for Nov’17 remained in-line with capacity utilization level crossing 100% (108% capacity utilization for the month). Sales for the outgoing month marginally reduced by -1.1%MoM while growing +43.9%YoY, taking cumulative sales for 11MCY17 to 44,159 units, up +50.9%YoY. Honda BR-V sales continue to break previous month’s records, climbing to 1,248 units, rising +14.4%MoM amidst increasing consumer adoption following the launch. As per our dealer checks, Honda City remains booked till Feb’18 along with Honda Civic booking to Jun’18 presenting a strong order book.

Investment Perspective: INDU’s unhindered ability to pass on cost-increases in response to recent PkR devaluation to its consumers, a healthy order book for all variants (pre-booked to at least Feb’18 even after order book cleanup) and upcoming debottleneck activity coming online in 1QCY18 to enhance capacity (increasing to 75K/annum), all lead us to believe that demand for INDU’s products are to remain intact. Furthermore, the OEMS significant stronghold in terms of market share (current market share of 54% in 1300 and above, 18% in LCVs and Pickup and 100% in SUVs for 11MCY17), make INDU a compelling investment thesis. Our TP of 2,069 offers 23.8% upside, accompanied by FY18/19E D/Y of 6.6/6.6%.

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