Elixir Securities Limited – Elixir Insight

Karachi, June 13, 2018 (PPI-OT): Automobile Assemblers – Ramadan Drowsiness: Sales for May-18Declined by 15%MoM

Passenger car sales for the month of May-18 fell 15% MoM as production slowed down due to reduced working hours in Ramadan. However the overall sales growth remained robust on YoY basis, as can be gauged by 4/16% YoY increase in May-18/ 11MFY18.

Amongst assemblers, PSMC was the key laggard with a MoM sales decline of 21%, likely due to restoration of previous import vehicle policy resulting in an influx of imported used cars. This has normalized the sales trajectory for the company, unwinding the abnormal growth witnessed in previous month (+32%MoM in Apr-18).

Despite the recent meltdown in stock prices for Automobile Assemblers, we maintain Underweight stance on the sector on the back of ongoing PKR depreciation, expected slowdown in demand, interest rate liftoff, restriction of vehicle purchase by non-filers and upcoming entry of new players.

Growth in Passenger Cars Dwindle Due to Limited Production Hours in Ramadan: As per the latest Automobile Sales numbers released by Pakistan Automotive Manufacturers Association (PAMA), Passenger Car sales for the month of May-18 clocked in at 18,232 units, down 15%MoM but up 4%YoY. Overall this culminated in volumetric growth of 16%YoY in 11MFY18.

Reason for the decline in May-18 sales number can be associated with limited working hours in Ramadan. Recall that Automobile Assemblers due to production capacity constraints have been working in double shifts in normal days; however in Ramadan, working hours are reduced thus dragging down production. On SPLY basis, sales for the cars in May-18 showed a modest growth of 4% as compared to double digit growth in previous months since Ramadan came 10 days earlier as compared to last year and accounted for most of May.

On cumulative basis, sales for 11MFY18 stood at 16% to 201,143 units. Rising auto financing, growth in ride hailing services and improved economic indicators drove the growth for eleven months period.

PSMC – Restoration of Import Vehicle Policy Suspending Abnormal Sales Growth: Amongst the industry players, Pak Suzuki Motor Company (PSMC) was the key laggard in the outgoing month where sales declined by 21%MoM. Reason for the decline can be associated with Ramadan effect together with abnormal surge in sales in previous month. Earlier, commercial importers had slowed down booking for import of used cars due to lack of clarity on import vehicle policy under Gift/Baggage scheme and suspension of release of imported vehicles by Customs between Oct-17 to Jan-18. This caused a surge in demand for small passenger cars; as a result, PSMC’s sales surged by 32%MoM in Apr-18 thus causing an abnormal growth.

However in Feb-18, Cabinet restored previous import vehicle policy (import of used vehicles takes place under the Gift, Baggage and Transfer of Residence Schemes for overseas Pakistanis who ship such vehicles individually) and asked for clearance of 10,600 vehicles that were stuck on Port.

Although the restriction on imported vehicles was withdrawn in Feb-18 but the time required to import cars (i.e. ~3 months) supported PSMC’s sales over this period. Now since the restriction has been withdrawn and commercial dealers are importing cars, PSMC’s sales have come back to their pre-import vehicle restriction levels.

Meanwhile automobile sales for Honda Atlas Cars (HCAR) and Indus Motors Company (INDU) also declined by 7% and 4%MoM, respectively due to limited working hours in Ramadan. Cumulatively, 11MFY18 sales for both players posted growths of 32% and 4%, respectively.

11MFY18 Sales Remain Strong for Tractors and Pickups: Tractors sales increased by 19%YoY in May-18 and 33%YoY during 11MFY18. Within this segment, Millat Tractors (MTL) outperformed with a growth of 22%YoY during May-18, taking its market share to 61% for 11MFY18. The Ramadan effect however dragged down sales of the segment by 17%MoM.

Pickup sales increased 15%YoY in May-18 owing to impetus from the ongoing CPEC construction and expected subsequent transit activity. On Cumulative basis, pick-up sales continued to maintain momentum and jumped 23%YoY during 11MFY18.

Maintain Underweight Despite Recent Meltdown in Stock Prices: We expect total sales for Automobile Sales (passenger cars, jeeps, select pick-ups)to reach 500k units pa by FY24 (460k/40k local/imports), which incorporates 1) average growth rate of 7% for total demand during FY19-24 and 2) 5%/20% yearly decline in imports in FY19/FY20-22. We however maintain our skepticism on the sector as incumbent assemblers are bound to witness margin attrition, loss in pricing power and market share decline amidst a flurry of upcoming new players, interest rate hikes and ongoing PKR depreciation. Hence we maintain Underweight stance on the sector.

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Elixir Securities Limited – Elixir Insight

Karachi, June 13, 2018 (PPI-OT): Automobile Assemblers – Ramadan Drowsiness: Sales for May-18Declined by 15%MoM

Passenger car sales for the month of May-18 fell 15% MoM as production slowed down due to reduced working hours in Ramadan. However the overall sales growth remained robust on YoY basis, as can be gauged by 4/16% YoY increase in May-18/ 11MFY18.

Amongst assemblers, PSMC was the key laggard with a MoM sales decline of 21%, likely due to restoration of previous import vehicle policy resulting in an influx of imported used cars. This has normalized the sales trajectory for the company, unwinding the abnormal growth witnessed in previous month (+32%MoM in Apr-18).

Despite the recent meltdown in stock prices for Automobile Assemblers, we maintain Underweight stance on the sector on the back of ongoing PKR depreciation, expected slowdown in demand, interest rate liftoff, restriction of vehicle purchase by non-filers and upcoming entry of new players.

Growth in Passenger Cars Dwindle Due to Limited Production Hours in Ramadan: As per the latest Automobile Sales numbers released by Pakistan Automotive Manufacturers Association (PAMA), Passenger Car sales for the month of May-18 clocked in at 18,232 units, down 15%MoM but up 4%YoY. Overall this culminated in volumetric growth of 16%YoY in 11MFY18.

Reason for the decline in May-18 sales number can be associated with limited working hours in Ramadan. Recall that Automobile Assemblers due to production capacity constraints have been working in double shifts in normal days; however in Ramadan, working hours are reduced thus dragging down production. On SPLY basis, sales for the cars in May-18 showed a modest growth of 4% as compared to double digit growth in previous months since Ramadan came 10 days earlier as compared to last year and accounted for most of May.

On cumulative basis, sales for 11MFY18 stood at 16% to 201,143 units. Rising auto financing, growth in ride hailing services and improved economic indicators drove the growth for eleven months period.

PSMC – Restoration of Import Vehicle Policy Suspending Abnormal Sales Growth: Amongst the industry players, Pak Suzuki Motor Company (PSMC) was the key laggard in the outgoing month where sales declined by 21%MoM. Reason for the decline can be associated with Ramadan effect together with abnormal surge in sales in previous month. Earlier, commercial importers had slowed down booking for import of used cars due to lack of clarity on import vehicle policy under Gift/Baggage scheme and suspension of release of imported vehicles by Customs between Oct-17 to Jan-18. This caused a surge in demand for small passenger cars; as a result, PSMC’s sales surged by 32%MoM in Apr-18 thus causing an abnormal growth.

However in Feb-18, Cabinet restored previous import vehicle policy (import of used vehicles takes place under the Gift, Baggage and Transfer of Residence Schemes for overseas Pakistanis who ship such vehicles individually) and asked for clearance of 10,600 vehicles that were stuck on Port.

Although the restriction on imported vehicles was withdrawn in Feb-18 but the time required to import cars (i.e. ~3 months) supported PSMC’s sales over this period. Now since the restriction has been withdrawn and commercial dealers are importing cars, PSMC’s sales have come back to their pre-import vehicle restriction levels.

Meanwhile automobile sales for Honda Atlas Cars (HCAR) and Indus Motors Company (INDU) also declined by 7% and 4%MoM, respectively due to limited working hours in Ramadan. Cumulatively, 11MFY18 sales for both players posted growths of 32% and 4%, respectively.

11MFY18 Sales Remain Strong for Tractors and Pickups: Tractors sales increased by 19%YoY in May-18 and 33%YoY during 11MFY18. Within this segment, Millat Tractors (MTL) outperformed with a growth of 22%YoY during May-18, taking its market share to 61% for 11MFY18. The Ramadan effect however dragged down sales of the segment by 17%MoM.

Pickup sales increased 15%YoY in May-18 owing to impetus from the ongoing CPEC construction and expected subsequent transit activity. On Cumulative basis, pick-up sales continued to maintain momentum and jumped 23%YoY during 11MFY18.

Maintain Underweight Despite Recent Meltdown in Stock Prices: We expect total sales for Automobile Sales (passenger cars, jeeps, select pick-ups)to reach 500k units pa by FY24 (460k/40k local/imports), which incorporates 1) average growth rate of 7% for total demand during FY19-24 and 2) 5%/20% yearly decline in imports in FY19/FY20-22. We however maintain our skepticism on the sector as incumbent assemblers are bound to witness margin attrition, loss in pricing power and market share decline amidst a flurry of upcoming new players, interest rate hikes and ongoing PKR depreciation. Hence we maintain Underweight stance on the sector.

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Elixir Securities Limited – Elixir Insight

Karachi, June 13, 2018 (PPI-OT): Automobile Assemblers – Ramadan Drowsiness: Sales for May-18Declined by 15%MoM

Passenger car sales for the month of May-18 fell 15% MoM as production slowed down due to reduced working hours in Ramadan. However the overall sales growth remained robust on YoY basis, as can be gauged by 4/16% YoY increase in May-18/ 11MFY18.

Amongst assemblers, PSMC was the key laggard with a MoM sales decline of 21%, likely due to restoration of previous import vehicle policy resulting in an influx of imported used cars. This has normalized the sales trajectory for the company, unwinding the abnormal growth witnessed in previous month (+32%MoM in Apr-18).

Despite the recent meltdown in stock prices for Automobile Assemblers, we maintain Underweight stance on the sector on the back of ongoing PKR depreciation, expected slowdown in demand, interest rate liftoff, restriction of vehicle purchase by non-filers and upcoming entry of new players.

Growth in Passenger Cars Dwindle Due to Limited Production Hours in Ramadan: As per the latest Automobile Sales numbers released by Pakistan Automotive Manufacturers Association (PAMA), Passenger Car sales for the month of May-18 clocked in at 18,232 units, down 15%MoM but up 4%YoY. Overall this culminated in volumetric growth of 16%YoY in 11MFY18.

Reason for the decline in May-18 sales number can be associated with limited working hours in Ramadan. Recall that Automobile Assemblers due to production capacity constraints have been working in double shifts in normal days; however in Ramadan, working hours are reduced thus dragging down production. On SPLY basis, sales for the cars in May-18 showed a modest growth of 4% as compared to double digit growth in previous months since Ramadan came 10 days earlier as compared to last year and accounted for most of May.

On cumulative basis, sales for 11MFY18 stood at 16% to 201,143 units. Rising auto financing, growth in ride hailing services and improved economic indicators drove the growth for eleven months period.

PSMC – Restoration of Import Vehicle Policy Suspending Abnormal Sales Growth: Amongst the industry players, Pak Suzuki Motor Company (PSMC) was the key laggard in the outgoing month where sales declined by 21%MoM. Reason for the decline can be associated with Ramadan effect together with abnormal surge in sales in previous month. Earlier, commercial importers had slowed down booking for import of used cars due to lack of clarity on import vehicle policy under Gift/Baggage scheme and suspension of release of imported vehicles by Customs between Oct-17 to Jan-18. This caused a surge in demand for small passenger cars; as a result, PSMC’s sales surged by 32%MoM in Apr-18 thus causing an abnormal growth.

However in Feb-18, Cabinet restored previous import vehicle policy (import of used vehicles takes place under the Gift, Baggage and Transfer of Residence Schemes for overseas Pakistanis who ship such vehicles individually) and asked for clearance of 10,600 vehicles that were stuck on Port.

Although the restriction on imported vehicles was withdrawn in Feb-18 but the time required to import cars (i.e. ~3 months) supported PSMC’s sales over this period. Now since the restriction has been withdrawn and commercial dealers are importing cars, PSMC’s sales have come back to their pre-import vehicle restriction levels.

Meanwhile automobile sales for Honda Atlas Cars (HCAR) and Indus Motors Company (INDU) also declined by 7% and 4%MoM, respectively due to limited working hours in Ramadan. Cumulatively, 11MFY18 sales for both players posted growths of 32% and 4%, respectively.

11MFY18 Sales Remain Strong for Tractors and Pickups: Tractors sales increased by 19%YoY in May-18 and 33%YoY during 11MFY18. Within this segment, Millat Tractors (MTL) outperformed with a growth of 22%YoY during May-18, taking its market share to 61% for 11MFY18. The Ramadan effect however dragged down sales of the segment by 17%MoM.

Pickup sales increased 15%YoY in May-18 owing to impetus from the ongoing CPEC construction and expected subsequent transit activity. On Cumulative basis, pick-up sales continued to maintain momentum and jumped 23%YoY during 11MFY18.

Maintain Underweight Despite Recent Meltdown in Stock Prices: We expect total sales for Automobile Sales (passenger cars, jeeps, select pick-ups)to reach 500k units pa by FY24 (460k/40k local/imports), which incorporates 1) average growth rate of 7% for total demand during FY19-24 and 2) 5%/20% yearly decline in imports in FY19/FY20-22. We however maintain our skepticism on the sector as incumbent assemblers are bound to witness margin attrition, loss in pricing power and market share decline amidst a flurry of upcoming new players, interest rate hikes and ongoing PKR depreciation. Hence we maintain Underweight stance on the sector.

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