· GoP recently banned the import of Autos for an initial period of 2 months, although this might get extended further. We believe this to have a positive impact on the sales of OEMs, due to the fact that the market for imported vehicles is going to dissipate. PSMC will be the biggest benefactor of this given the relatively stronger competition from imported vehicles in the less than 1000cc segment.

· The local OEMs are exposed to exchange rate volatility, mainly the Dollar, Yen, and the Baht. Where in every 5% devaluation in the Rupee, HCAR would lose PkR0.6/sh from the profits, PSMC would lose PkR1.2/sh, and INDU would lose PkR43.1/sh.

· SBP recently announced that tenures for auto-financing are to be reduced by 2 years, 5 years for cars in the below 1000cc segment, 3 years for cars above 1000cc. According to estimates, this will increase the monthly instalments by ~40%. This along with rising interest rates means auto-loans will become more unaffordable for a significant portion of customers.

· Demand in the industry will reduce due to the new auto-financing tenures announced by SBP, further impacted by continuously rising prices for vehicles. However, the import ban is likely to act as a buffer in the short term Demand in the industry is likely to reduce by 20-30% in FY23, as per our estimates. In the short-term and upcoming quarters, sales are not expected to be impacted as the order books of the OEMS extend further than 2 months.

AKD Research