JS Securities Limited – JS Research (13-11-2019)

Karachi, November 13, 2019 (PPI-OT): Auto sales in line with low expectations; down 56% YoY

Auto sales declined by 56% YoY during October as a measly 10,932 units were sold, compared to 24,934 units in the same month last year.

PSMC sales shrank by 48% YoY, i.e. almost halved, and it would have been worse, had it not been for Alto sales. Even Alto’s volumes were shaved off by ~1k units in Oct-2019 when compared to Sep-2019.

INDU (-61% YoY) and HCAR (-72% YoY) continue to struggle with demand, with INDU recently announcing single shift production and both companies experiencing non-production days on a recurrent basis for the time being.

Auto sales exhibited yet another month of startlingly low volumes, as total passenger cars and light commercial vehicles’ (LCV) combined sales plummeted by 56% YoY during October as a measly 10,932 units were sold, compared to 24,934 units in the same month last year. The decline was expected from all corners, considering massive devaluation over the previous two years and their corresponding impact on car prices and the repeated hikes in interest rates. The last straw for many consumers seems to have been the imposition of FED, which became applicable from July 1, 2019 (i.e. post budget). It was indeed July 2019 from when volumes really began to plummet (4MFY20 volumes down 45% YoY), experiencing relentless double-digit declines in each month since and this month was no different. We expect the decline in volumes to persist throughout FY20 (till Jun-2019) as the high base of FY19’s volumes remains.

In the next year (FY21), volumes might pick up slightly for the auto industry. But also consider the fact that there will be more new players in the market by then – Kia is already in the market as is United (Bravo) and Hyundai and DFSK (Prince Pearl) will also have entered the fray. In other words, auto volumes might pick up in FY21, but market shares and volumes of the Japanese OEMs might not actually witness growth. And when we say volumes for the sector will pick up, it will probably be in low single digits, and they will be nowhere close to those levels seen throughout FY16-19 when earnings of these companies also rocketed.

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