Indus Motor Co. Ltd – 2QFY21 Analyst Briefing

INDU posted 2QFY21 net profits of PKR3.0bn (EPS: PKR37.6), up 3x yoy and 19x qoq, due to a 2.1x yoy increase in revenues and 2.6x yoy higher other income (amid larger cash balances). INDU also announced an interim dividend of PKR25/sh. This took 1HFY21 net profits to PKR4.8bn (EPS: PKR61.19), and DPS to PKR37/sh.

Key highlights for 2QFY21:

The company sold 26,362 units (CKD and CBU combined) during 2Q, which were up 82% yoy. Total industry sales during 2Q rose by 32% yoy, led by a surge in demand for the Premium segment cars, while the demand for the Economy segment fell by 28% yoy – as seen in the decline in PSMC sales (down 15% yoy). Refer table below.

The increase in demand for Premium segment cars is largely due to the overwhelming response for Yaris, while the demand for both the Fortuner and Revo surged in 2Q (up c.30% qoq). The yoy decline in GMs in 2Q, was largely due to the supply-chain issues in Asia (elevated freight costs).

Other income rose 2.6x% yoy due to a higher fund size of PKR64bn, attributed to the sharp increase in advances.

Guidance for future sales and profitability

The easing of the country-wide lockdowns and resultant improvement in the overall economy, led to sharp rise in Auto sales in 1HFY21 (up 32% yoy). Given the present momentum remains intact, the management expects industry sales to rise to 250,000/300,000 units in FY21/22f, before crossing the 500,000 units level by FY26-27.

Auto financing contributed roughly 15-20% to INDU’s overall incremental sales in 1H. Sales through auto-financing are expected to increase due to the various bank offers and low interest rates (7%). The management does not expect any significant impact on sales from an increase in interest rates (as long as they remain below 10%).

INDU is presently operating on a double-shift basis, while mulling to introduce a third shift in order to reduce lead times. The management expects record production levels in March/April, due to normalized availability of raw materials (which hitherto had been delayed due to shipping issues).

With regards to price increases in the near future, INDU has been absorbing the higher costs (commodity prices and elevated freight costs), while improving cost efficiencies. Prices will only be increased if these costs surge further, or if new variants (facelifts) are launched.

The Auto industry is in continuous talks with the government with regards to a support package and incentives for hybrid vehicles, similar to those given in the EV policy. The government is seeking proposals from industry players; however, the acceptance of such industry proposals as abolishment of FED and customs duty seems unlikely due to the tight tax collection targets of government, as per INDU.

INDU is presently trading at attractive valuations (FY21/22f P/E of 8.6/8.3x), following the 18% CYTD decline in share price. We maintain our preference for the stock in the Auto space, where we have a TP of PKR1,458/sh (thus implying an upside of 46%), with a FY21/22f D/Y of 6/10%.

Courtesy – Intermarket Securities Limited


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