JS Securities Limited – Morning Briefing

Karachi, December 12, 2017 (PPI-OT): Autos: Nov-2017 sales jump 18% YoY; INDU our top pick with TP of Rs. 2,201

Auto sales (Cars and LCVs) as per PAMA data rose 18% YoY during the month of Nov-2017.

Honda Atlas Cars (HCAR) recorded 44% YoY growth during the month mainly on the back of BR-V sales.

Pak Suzuki Motor Company (PSMC) volumes were up 20% YoY, with volumes of Wagon-R (up 57% YoY), Mehran (up 30% YoY) and Ravi (up 22% YoY) recording double-digit growth.

Indus Motor Company’s (INDU) unit sales dropped 1% YoY as Corolla sales declined by 10% YoY, however Fortuner (up 12x YoY) and Hilux (up 57% YoY) helped soften the impact of sluggish Corolla volumes.

We reiterate INDU as our top pick among JS Auto Universe companies with a Jun-2018 Target Price of Rs2,201 (upside of 31%).

We believe downside risk of Pak Rupee depreciation against US$ is lower for INDU relative to peers, which makes it a more attractive bet.

Auto sales up 18% YoY in Nov-2017

As per PAMA data, auto sales (Total Cars and LCVs) for the month of Nov-2017 increased by 18% YoY to 21,091 units, compared to 17,858 units in Nov-2016. Honda Atlas Cars (HCAR) outperformed industry peers with 44% YoY growth in unit sales during Nov-2017, supported by strong BR-V sales. Pak Suzuki Motor Company (PSMC) continued on a growth trend, with unit sales up 20% YoY during the month, led by strong sales growth of Wagon-R (up 57% YoY), Mehran (up 30% YoY) and Ravi (up 22% YoY).

Indus Motor Company (INDU) lagged behind its peers with a minor 1% YoY decline in volumes, where Corolla sales dropped 10% YoY during the month. Sales of Fortuner (up 12x YoY) and Hilux (up 57% YoY) helped soften the impact of lower Corolla volumes to the company. Among commercial vehicles, Ghandhara Industries (GHNI, up 36% YoY), Al-Ghazi Tractors (AGTL, up 15% YoY) and Atlas Honda Limited (ATLH, up 11% YoY) reported double digit growth during the month. On a MoM basis, Auto sales declined by 10% MoM, where we believe drop in sales is potentially due to seasonality factor, where consumers prefer deliveries from Jan onwards.

INDU remains our top pick among autos

We reiterate INDU as our top pick from JS Auto Universe, with a Jun-2018 Target Price of Rs2,201 (upside of 31%). The stock currently trades at FY18E P/E of 9.1x, offering a FY18E D/Y of 8%. We highlight that INDU faces lower downside risk to adverse Pak Rupee movements relative to peers due to (1) higher pricing power compared to smaller car segment due to relatively price-inelastic consumer base, and (2) higher degree of localization in Corolla, compared to Civic and City. Key risks to our investment thesis are (1) higher-than-expected PKR depreciation and (2) lower-than-expected demand growth.

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