Pakistan auto sector profitability is likely to increase during FY21

Automobile sector posted outstanding financial results during FY21 as their net profitability increased by 4.6x on year on year basis due to i) Low policy rate helping car sales to increase drastically as auto financing has increased by PKR 97bn during FY21, ii) Low base effect amid lockdown announced country wide which restricted economic activity, iii) Rapid growth in economic activity and iv) Appreciation of PKR against regional currencies improving gross margins of the listed companies. As a result, automobile sales volumes (including LCVs and 4*4) increased by 62% YoY in FY21 to 181,386 units compared to 112,266 units in FY20. Likewise, tractors sales increased by 56% YoY during FY21 to 50,656 units compared to 32,531 units in same period last year.

Topline of the sector increased by 77% YoY to PKR 574bn during FY21 compared to PKR 324bn in SPLY. Sales revenue increased due to i) rising demand on the back of improving purchasing power parity, ii) Higher inflows of foreign remittances, and iii) higher prices of vehicles compared to same period last year. Likewise, sales volume of two wheelers (ATLH) also increased by 48% YoY to 1,292,096 units due to aforementioned reason.

Profitability of the Automobile Parts grew in line with the assemblers due to improvement in margins of all listed players given massive demand from automobile assemblers, economies of scale and currency appreciation against green back resulting in surge in gross margins.

INDU’s bottom-line recorded a significant jump of 152% YoY to PKR 12,829mn in FY21 vs PKR 5,082mn in preceding period last year. The growth in profitability is attributable to volumetric growth of 102% YoY to 57,236 units (Yaris 28,295 units, Corolla 18,355 units, Fortuner 3,543 units, Hilux 7,043 units) vs. 28,378 units (Corolla 22,140 units, Yaris 1,327 units, Fortuner 1,163 units, Hilux 3,748 units) in FY20. Gross margins settled at 9.30%, up by 65bps YoY amid change in sales mix and PKR appreciation against USD.

During FY21, MTL’s earnings settled at PKR 5,781mn, up by 169% YoY compared to PKR 2,151mn in FY20. MTL outperformed as tractor volumes surged by 71% YoY to 35,527 units due to improvement in farmers yield which bodes well for tractor industry. On the other hand, gross margins improved amid economies of scale, currency appreciation and change in sales mix.

PSMC and HCAR goes from loss to profit in FY21 as bottom-line of both the companies skyrocketed on account of massive decline in finance cost given lower interest rate, drastic increase in volumes and higher other incomes given surge in advance from customers.

Courtesy – AHL Research

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