JS Securities Limited – Morning Briefing

Karachi, December 12, 2018 (PPI-OT): Auto sales down 17% YoY in Nov-2018; PSMC and HCAR see significant declines

Auto sales for the month of Nov-2018 clocked in at 17,507 units, registering a decline of 17% YoY.

Pak Suzuki (PSMC) recorded a massive 25% YoY decline, followed by Honda Atlas (HCAR, down 23% YoY), while Indus Motors (INDU, up 2% YoY) saw a minor increase during the month.

A dismal trend is visible in tractor segment, where Millat Tractors (MTL, down 38% YoY) and Al-Ghazi Tractors (AGTL, down 29% YoY) saw alarming declines in volumes.

We expect volumes this year to depict a negative trend in FY19E (down approx. 8-10% YoY) owing to various negatives surfacing in tandem to dent the sector’s outlook.

Auto sales down 17% YoY in Nov-2018

Auto sales for the month of Nov-2018 clocked in at 17,507 units, down by 17% YoY, which was below our expectations of a 12% YoY decline. The sole deviation from our estimates was seen in Pak Suzuki (PSMC), which recorded a massive 25% YoY decline in volumes, whereas we had been expecting a 15% YoY drop in volumes during the month for the assembler.

Although Cultus sales registered a 13% YoY increase during the month, massive declines in Mehran (-44% YoY), Bolan (-39% YoY) and Ravi (-28% YoY) shoved the company’s volumes into negative territory. Honda Atlas (HCAR) followed suit with a 23% YoY decline, where a 76% YoY decline in BR-V sales was the main contributor to the company’s downtrend (combined Civic and City sales declined 2% YoY). On the other hand, Indus Motors (INDU) witnessed a neutral month, with volumes up marginally by 2% YoY, compared to 7% YoY growth in 5MFY19.

Growth in INDU’s volumes was solely attributable to 9% YoY jump in Corolla sales, as Hilux (-46% YoY) and Fortuner (-15% YoY) churned out weak performances during the month. A similarly dismal trend was visible in the tractor segment, where Millat Tractors (MTL, down 38% YoY) and Al-Ghazi Tractors (AGTL, down 29% YoY) saw alarming declines in volumes on the back of recent price increases, which also led to protests from the farmer community.
Volumes likely to decline in FY19

We reiterate our view that volumes could depict a negative trend in FY19E (down ~10% YoY) owing to various negatives surfacing in tandem to dent the sector’s outlook. It will be interesting to see what pricing strategy the auto companies employ now, after the recent devaluation in the rupee, considering that combined gross margins of the three car companies have already plunged 379bps YoY in 1QFY19.

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