JS Securities Limited – Morning Briefing

Karachi, November 13, 2018 (PPI-OT): Auto sales up 6% YoY in Oct-2018; nothing to write home about though

Auto sales, comprising passenger cars and light commercial vehicles (LCVs), for the month of Oct-2018 clocked in line with our expectations, at 24,850 units, growing by 6% YoY.

Indus Motor Company (INDU) led sector sales in Oct-2018 where volumes grew 25% YoY.

Honda Atlas Cars (HCAR) recorded 11% YoY growth during the month, as combined Civic/City sales jumped by 31% YoY.

Pak Suzuki Motor Company (PSMC) saw sales dip by 2% YoY, owing to double-digit falls in Mehran (-24% YoY) and Bolan (-22% YoY) volumes.

Amid an unfavorable environment for autos, including weaker rupee, rising inflation and interest rates, the influx of new competition could make the situation more challenging for existing OEMs going forward.

Auto sales up 6% YoY in Oct-18; in line with expectations

Auto sales, comprising passenger cars and light commercial vehicles (LCVs), for the month of Oct-2018 clocked in line with our expectations, at 24,850 units, growing by 6% YoY. Growth in volumes during the month was most likely a consequence of higher production as existing backlogs were potentially utilized rather than growth being a consequence of significant fresh demand. Fear of further price increases (prior to Oct-2018) might also have hastened customers’ buying decisions and contributed to volumetric growth.

INDU: leading sector volumes in Oct-2018

Indus Motor Company (INDU) led the sector during the month where volumes grew by 25% YoY to one of its highest ever levels, mainly due to 33% YoY growth in Corolla sales, despite a pullback witnessed in Fortuner and Hilux sales of 23% YoY and 6% YoY, respectively. Honda Atlas Cars (HCAR) recorded 11% YoY growth during the month, as combined Civic/City sales jumped by 31% YoY, compensating for a 52% YoY plunge in BR-V sales. Pak Suzuki Motor Company (PSMC) saw sales dip by 2% YoY, as declines in Mehran (down 24% YoY) and Bolan (down 22% YoY) negated the strong growth from Cultus (65% YoY), Swift (45% YoY) and Ravi (13% YoY) volumes. Among other categories, Al-Ghazi Tractors (AGTL) saw sales drop for yet another month, which was most likely due to lower acreage sown in Sindh, where the company makes most of its sales. Finally, Sazgar Engineering (SAZEW) saw a massive 57% YoY decline in unit sales, which can be attributed to the jump in CNG prices.

Situation remains bleak despite the high number

Growth in volumes was seen in Oct-2018 despite a turbulent period for the sector with surging macroeconomic negatives including (1) weakening rupee, (2) rising inflation, and (3) increasing interest rates. This does not include the non-filer restriction imposed from the current fiscal year, which could reflect more vividly in coming months. The situation is expected to become even more challenging going forward, as new entrants begin to trespass into the Japanese OEMs territory, which could have negative repercussions for the existing companies’ volumes and market share

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