Pakistan Automobile sector profitability is likely to decline 6% YoY

Topline Pakistan Research has released a report on the Pakistan Automobile sector, whose profitability is likely to decline 6% YoY but rise 14% QoQ; Volumes up 34% YoY and 11% QoQ. Topline Auto Universe is expected to post profitability of Rs14.9bn in 3QFY26, compared to Rs15.9bn in 3QFY25, reflecting a 6% YoY decrease, primarily driven by decreasing gross profit margins. § On a QoQ basis, profitability is projected to rise by 14%, mainly due to the typical January effect.

Notably, consumers defer vehicle purchases until the end of the previous year to secure a newer model-year registration, thereby enhancing resale value. § Net sales are anticipated to increase 29% YoY and 22% QoQ to Rs177.9bn in 3QFY26, mainly due to higher volumes.

§ To highlight, volumes across the Topline universe rose 34% YoY and 11% QoQ to 30,939 units in 3QFY26. Excluding MTL, passenger car sales for INDU, HCAR, and SAZEW reached 26,228 units, up 41% YoY and 22% QoQ, underscoring a strong recovery in car demand.

§ Total passenger car sales (reported by PAMA) increased by 39% YoY and 21% QoQ to 55,707 units in 3QFY26.

§ Atlas Honda Limited (ATLH), a Topline Alpha Pick, continues to maintain a strong foothold in the 2-wheeler segment. The company’s sales have reached 435,518 in 3QFY26, up 32% YoY and 3% QoQ.

§ Gross margins for the Topline Auto Universe are expected to clock in at 19.36% in 3QFY26, compared to 21.98% in 3QFY25 and 19.99% in 2QFY26. The compression in gross margins is due to product mix shifts, a higher share of lower-margin variants, and cost pressures, such as the carbon levy, across certain segments.

§ Other income of the Topline Auto Universe is likely to clock in at Rs3.8bn, up by 6% YoY but down 42% QoQ in 3QFY26 due to a one-off reported in 2QFY26.

§ Effective tax rate (ETR) of Topline Universe is likely to clock in at ~37.5% in 3QFY26 vs. 25.3% in 3QFY25 and 41.6% in 2QFY26.

§ Indus Motor Company (INDU): We expect INDU’s earnings to fall 6% YoY while up 4% QoQ to Rs79.28/share in 3QFY26. The YoY decline is due to a fall in gross margins led by a change in sales mix. Gross profit margin is expected to clock in at ~13.3% in 3QFY26 vs 16.93% in 3QFY25. Net sales are expected to rise 24% YoY and 31% QoQ to Rs75bn, mainly due to a strong volume recovery of 40% YoY and 19% QoQ to 12,750 units. Along with the result, we expect a cash dividend of Rs 50/share (3QFY26 Payout ratio: 63%).

§ Honda Atlas Car (HCAR): HCAR is expected to post EPS of Rs6.45 in 4QMY26, down 45% YoY but up 40% QoQ mainly due to change in gross margins. Gross margins for 4QMY26 are projected at 8.2%, down 188bps from 10.08% in 4QMY25 and improving 65 bps from 7.55% in 3QMY26. Volumetric sales stood at 8,058 units, up 42% YoY and 13% QoQ. Along with the result, we expect a final cash payout of Rs9.0/share, with the annual payout ratio of ~41%.

§ Sazgar Engineering Works (SAZEW): We expect SAZEW’s earnings to clock in at Rs94.73/share, down 8% YoY but up 42% QoQ. The YoY decline is due to a higher base, where the company recorded its highest gross profit margins of 32.6%. We believe SAZEW will record gross profit margin of ~24.4% in 3QFY26 which is 820bps down YoY, mainly due to a higher mix of petrol variants. Net sales are expected to rise 35% YoY and 46% QoQ to Rs49.6bn, driven by 41% YoY and 48% QoQ to 5,420 units in 3QFY26. Along with the results, we expect the company to announce a cash dividend of Rs 20.0/share (3QFY26 Payout ratio: 21%).

§ Millat Tractors Limited (MTL): We expect MTL’s earnings to rise 49% YoY while down 14% QoQ to an EPS of Rs10.37 in 3QFY26. The YoY rise is due to a 7% YoY rise in units sold to 4,711 units. Gross margins are projected at ~32% in 3QFY26, compared with 28% in 3QFY25 and 35% in 2QFY26. We do not expect the company to announce a dividend this quarter, in line with its historical payout pattern of declaring dividends at the half-year and full-year stages.

§ Atlas Honda Bikes (ATLH): ATLH, one of our Alpha Stocks, is expected to post EPS of Rs45.51, up 23% YoY while flattish QoQ. The company recorded all-time high quarterly sales, and with a market share of ~86%, it continues to dominate the 2-wheeler segment. As a result, net sales and profitability are expected to reach record high in 4QMY26, supported by sustained motorcycle demand. Volumes in 4QMY26 reached 435,518 units, up 32% YoY and 3% QoQ.