Pakistan Autos sales recovered in June 2020

In June 2020, Auto industry sales of 8,753 units (though down 50% yoy) posted a strong recovery compared to May’s sales of 4,527 units (up 93% mom). We attribute this to the pent-up demand post lockdown (March-May). Both premium carmakers, INDU and HCAR, saw a staggering increase in sales, by c.4.6x / 6.0x, compared with their sales in May. PSMC sales were up a relatively modest 9% mom to 3,912 units. FY20 sales are 111,928 units (down 53% yoy).

INDU sold 855 units of Corolla, while sales for the highly-awaited Yaris jumped to 1,160 units. Their combined sales were equal to that in March (before lockdown). Hilux sales rose a staggering 508% mom (down 41% yoy) to 438 units – potentially led by the imposition of 7.5% FED on locally produced pick-ups (in the FY21 Budget, effective 1 July). Fortuner sales were also 5x more mom (78 units). INDU’s FY20 sales were 28,371 units (down 56% yoy).

HCAR sold 2,003 units in June, with Civic and City sales of 1,839 units (down 13% yoy but nearly up 6.0x mom). BR-V sales increased by 160% yoy to 164 units in June. HCAR sales may reflect the pickup in urban demand post lockdown.

PSMC’s Alto and Wagon-R sales rose 27% and 23% mom (flattish yoy, down 82% yoy) respectively. Cultus sales, however, fell 10% mom (down 16% yoy). PSMC recently announced price increases for the base Alto by c.5.5%, which may be aimed at passing on the recent PKR depreciation of c.3%. INDU and HCAR had announced price hikes in April and May, respectively.

Tractor industry recorded sales of 5,314 units were up 187% mom and 46% yoy. Sales for AGTL saw an overwhelming 13.9x mom increase to 1,925 units; while those of MTL nearly doubled mom to 3,378 units, bringing yearly sales for MTL to 20,706 (down 35% yoy). Sales increased potentially due to an increase in agricultural produce and the recent decrease in prices (GST reduced from 5% to 0%). This brings the FY20 industry sales to 32,720 units (down 35% yoy).

Sales of many car models reverted to the pre-pandemic levels in June. Total sales of the April-June quarter of 13,319 units compares poorly to 31,119 units sold last year and 32,862 units sold in the previous quarter. Looking ahead, the recent price hikes by OEMs will likely delay or slow down recovery in FY21f. However, the sharp monetary easing of 625bps in 2020 so far can lift auto-financing earlier than expected, in our view. More new models besides Toyota Yaris (potentially new Honda City) could serve to attract consumer interest. INDU is our top pick in the space with a TP of PKR1,273/sh, for its comfortable balance sheet position and relatively moderate threat from new entrants. (Intermarket Securities Limited)

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