Indus Motor Company Limited (INDU) held its analyst briefing session last week to discuss the critical outcomes of 3QFY21 and 9MFY21 results. To recall, the company posted a PAT of PKR 3.6Bn (EPS: PKR 46.0) in 3QFY21 (↑35/22% YoY/QoQ), taking the 9MFY21 earnings to PKR 8.4Bn (EPS: PKR 107.1) (↑69% YoY). The company also announced a DPS of PKR 30/sh, taking a total 9MFY21 dividend payout to PKR 67/sh.
Key highlights of the session are discussed below:-
During 9MFY21, INDU increased its market share to 23.5% (↑2.4% YoY) and sold 42,988 vehicles (↑67% YoY). The sales increased to PKR 131.2Bn (↑67% YoY) due to overall higher CKD sales and change in sales mix (higher sales of Corolla, Hilux and Fortuner).
Despite higher sales, the gross margins declined to 8.2% in 9MFY21, compared to 10.3 SPLY, due to higher raw material procurement costs.
As Yaris constitutes ~60% of the total sales of INDU, the launch of the new Hon-da City should impact sales adversely. However, delivery times of the City’21 will be rather long, while the Yaris is currently available for delivery in less than 1-2 months, which may entice buyers to choose INDU’s offering.
After the immense demand for the new Corolla’21, the company has also launched the facelifted version of the Fortuner and Hilux. The management stated that the delivery times would be around four months due to overwhelming demand.
The company has been operating on a double shift capacity to meet demand. INDU had already announced expanding its total capacity to 80K units from its current capacity of 65k units (Capex of PKR 4-5Bn). This was expected to come online by Sep’20 but was delayed due to the pandemic.
INDU faced shipment/container delays from Nov’20-Feb’21, but its supply chain team kept margins in check while maintaining delivery times. In the future, the international supply chain disruption is under control, and the company is also not severely affected by the global semiconductor shortage.
The appreciating PKR offset the increasing commodity prices (Steel, plastic resin, copper, aluminium, etc.) in the 9MFY21. However, if the commodity price fails to stabilize, INDU may increase vehicle prices to pass on the cost.
The new auto policy is under discussion. INDU has advised the policymakers to remove Federal Excises Duty (FED) and Additional Custom duty (ACD) to stabilize the automobile industry.
INDU has also requested a hybrid vehicle policy with strong incentives to set up a plant in Pakistan. The management also stated that the cost of assembling the exact vehicle, if the only difference is its engine option (Hybrid vs ICU), does not require a significant Capex as most parts of the hybrid vehicle will be imported.
The management estimates the automobile market to grow to 0.24/0.30Mn units by the end of FY21/22 and effortlessly to 0.5Mn units by FY26-27. This should allow for all existing and new local players to maintain steady growth.
Courtesy -BMA Capital Management Ltd.