Pakistan auto sales fall on May 21

In May 2021, Auto industry sales fell 9% mom to c.15,700 units, on account of lower production (down c.10% mom) amid reduced working hours at the tail-end of Ramadan and unusually long Eid holidays (to tame the rise in Covid-19 cases), in our view. Despite the reduced work hours, the industry was able to contain the decline, as the resolution of supply-chain issues enabled a ramp-up of production following the holidays. PSMC added most units to total industry sales.

Among INDU models, Hilux volumes cushioned the overall decline in sales (up 22% mom), while the remaining models fell by an average 15% mom. We expect an uptick in both production and sales in June, due to the easing of lockdown restrictions and robust demand.

HCAR sold c.2,000 units in May, with combined sales of Civic and City of c.1,600 units, down 23% mom. We believe that the decline was due to the phasing out of old City prior to the launch of the 6th generation model (potentially in July). BR-V sales rose a sharp 80% mom to c.400 units.

PSMC’s Cultus sales rose a sharp c.40% to c.1,800 units, due to improvements in the supply chain, in our view. Despite the c.20% mom decline, Alto sales remained above the 3,000 units’ level for the fifth sequential month. We expect PSMC sales to continue the present momentum in the remainder of CY21, where the impact of new competition is likely to remain moderate, in our view. We highlight that the positive Budget measures such as the reduction in FED on the Economy segment will boost volumes further.

Tractor industry recorded sales of c.4,200 units, down 6% mom. AGTL sales remained flattish mom, while that of MTL declined a modest 9% mom to c.2,900 units. We expect tractor sales to resume the uptrend in the coming months as farmer income continues to expand ahead of the Rabi harvesting season. MTL sales may also benefit from an increase in exports.

May witnessed a drop in sales following reduced working hours. The lower-for-longer interest rates and the influx of new models in the sector will maintain the robust demand for cars, in our view. The removal of FED (2.5%) and reduction in GST to 12.5% (vs 17%) for cars up to 850cc will spur additional demand for the Economy segment, in our view. PSMC being the only listed economy segment OEM, is likely to witness a strong positive reaction in its stock price, in our view. We have an Overweight stance on both the Auto and Tractor OEMs, with Buy rating on all the scrips under coverage. We prefer PSMC (TP of PKR450/sh), INDU (TP of PKR1,458/sh), and MTL (TP of PKR1,460/sh), as our top picks.

Courtesy – Intermarket Securities Limited.

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