AKD Securities Limited – Off the Analyst’s Desk

Karachi, November 24, 2017 (PPI-OT): INDU: 1QFY18 Results Analyst Briefing – takeaways

In the latest iteration of its quarterly briefing for analysts, INDU shared operational details and key financial developments for the quarter. To recall, INDU reported 1QFY18 NPAT of PkR3.63bn (EPS: 46.17/sh) up 32%QoQ/19%YoY. The earnings growth was attributable to: 1) 21%YoY growth in topline backed by higher retail prices (prices increased in Aug’17) and 2) 120bps YoY improvement in gross margins.

Furthermore, key takeaways from the analyst briefing include:

Expectation for the year ahead: FY18 is expected to remain positive for the auto sector, while forthcoming elections in 2018 may have an influence on demand leading to increased buying in second half (especially double cabin Revo in the SUVs segment). We expect the demand for INDU offerings to grow by 5.4%YoY to 63K units for FY18.

Something is cooking: The management hinted towards introduction of a newer model going ahead. We expect Toyota Vios/Yaris as possible candidates to be added in the CKD portfolio in our view.

A new displacement for the SUVs: A new 3.0 Diesel engine displacement for the existing offerings in Toyota SUVs (Fortuner/ Revo) in on cards with the variant expected to be available to the end of FY18.

Corolla deletion levels: The localization level for Toyota Corolla has peaked out to 65%-70%. The local offering currently ranks the second in the industry in terms of deletion level.

Debottleneck activity in-line: The planned CAPEX outlay of US$40mn for the debottleneck activity to enhance capacity is currently underway. The management expects the first phase to be completed by 4QFY18.

Update on the lead times: Lead-time for Toyota Fortuner is now 60 days, however the XLI/GLI remains booked till May/June’18. Additionally, the management dispelled rumours about suspension of 1.3 Corolla (XLI/GLI) variants.

Welcoming the upcoming competition: The CEO was upbeat about the upcoming competition, with new entrants expected to raise local industry’s technical performance.

INDU remains well-positioned in this regard given to its strong brand presence, superior features and price competitiveness as compared to upcoming foreign competition in the premium class segment.

Devaluation to impact margins: Since INDU operates on Just-in-Time plans, any devaluation/ changes in the raw material prices will have an immediate adverse effect on the company. However, increasing deletion levels can counter the impact to some extent.

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