Pakistan auto players recorded good sales in September

In September 2021, Auto industry sales sustained strong growth momentum, rising a staggering c.60% yoy to 22,235 units (up c.3% mom), on account of robust demand for vehicles of PSMC, up c.70% yoy (although down 7% mom). On a mom basis, however, sales for HCAR led the industry (up 13% mom), largely attributed to the launch of the new City.

Among INDU models, Yaris and Corolla volumes rose c.5%/90% yoy, respectively. Fortuner volumes remained strong during the month (up c.5x yoy) at c.610units. Hilux and Revo volumes are likely to decline in the coming months due to the closure of bookings amid supply chain issues, in our view.

PSMC recorded the highest yoy growth among peers (up c.70% yoy), to c.11,200 units. The robust growth in sales is led by triple-digit growth in Cultus, while the remaining models grew by an average c.50% yoy. Volumes for the Swift declined c.65% yoy, which is attributed to the phasing out of the model (announced last year). According to channel checks, Cultus and Alto sales are likely to decline in the coming months amid closing of bookings of certain variants on account of semiconductor chip shortages.

HCAR sold c.3,600 units in September, up 35% yoy, led by Civic and City sales of c.3,640 units. The rise in sales is likely due to the commencement of deliveries of the new City. BR-V sales decreased by c.40% yoy to c.270 units (low base).

Tractor industry recorded sales of c.4,380 units, up a soft 2% yoy, dragged by the c.20% yoy decline in MTL volumes. AGTL sales grew a sharp c.50% yoy to c.2,100 (low base). We expect tractor sales to resume the uptrend in the coming months, as farmer income continues to expand amid elevated commodity prices and renewed government focus on the Agri-sector.

September witnessed a sharp yoy rise in sales largely due to the relatively improved macroeconomic environment, where economic activities started to improve following the complete lifting of lockdown last year. The impressive industry growth is likely to retract in the coming months amid (i) measures aimed on reducing auto-financing (including rising interest rates), (ii) potential reversal of incentives announced for the sector in the FY22 budget, and (iii) longer delivery lead times on account of supply chain issues (semiconductor chips and other parts), in our view. We highlight that potential price increases on the back of rising commodity prices and sharp PKR/USD depreciation may likely further dampen sales. We therefore are Marketweight on the sector, preferring both INDU (TP of PKR1,500sh) and MTL (TP of PKR1,460/sh) as our top picks.

Courtesy – Intermarket Securities Limited

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