AKD Securities Limited – Off the Analyst’s Desk

Karachi, October 17, 2017 (PPI-OT): Autos: RD hike adds impetus to pricing power

We believe that the impact of additional levies on imported variants is positive for local OEMs, raising demand for their offerings. Below is a compilation of current import offerings, price ranges and marginal impact on selling price from the additional RD levied.

As price differential between the imported variants rises, local OEMs may experience heightened demand, namely;

PSMC: Offering the Mehran and Wagon-R in the 660-800CC segment where the additional RD imposed is 65,000, raising price for competing imported variants by 5-6%. When compared to take home prices (including WHT) of PSMC’s variants the price differential between imported variants has increased to 18%. Additionally, in the 1000CC/1300CC segments the Cultus/Swift variants now retail at 12.2%/12.4% discount to comparable import variants vs. 7.3%/7.8% before the hike.

INDU: Corolla falls into 1300 CC and above segment in the passenger car segment, where the additional RD imposed is between 85,000 to 200,000. When compared to take home prices of INDU’s variants, the price differential to imports has increased to 24% from 20% before the RD based price hike. The Toyota Fortuner and Hilux are now exceedingly discounted to the cost of imported offerings, making them incomparable in competitive terms.

HCAR: Retailing the Honda Civic, City and BR-V that falls in the 1300 CC and above segment where the comparison of hiked prices due to the additional RD shows that Honda City/Civic/BR-V now trade at differentials of +41%/-8%/+5% vs. the prices before the hikes where the discount was +37%/-11%/-+2%. This show that the relative competitiveness of the Civic remains muted when looking at imported alternatives at similar price points.

Outlook: Considering the average price hike from the additional RD on competing imported variants ranges between 4-6%, we believe this opens up room for OEMs to raise prices. Heightened steel prices (rising 19%/24% during FYTD/May’17TD) are expected to be passed on in the next pricing cycle (Nov-Jan) which may be pushed sooner due to the additional room afforded by this RD levy, effectively enhancing pricing power of local OEMs.


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