Pakistan Autos: Following a robust performance in 1QFY24, the automotive industry faced challenges

Following a robust performance in 1QFY24, the automotive industry faced challenges, witnessing a 26% MoM decline in sales, with only 6,180 units sold during the month. YoY, sales plummeted by 54% compared to last year. The sales contraction primarily stems from plant shutdowns as industry players grappled with supply chain issues amid import restrictions.

INDU: Sales volumes witnessed a significant contraction in the quarter, declining by 34% MoM and 69% YoY, with the company selling only 1,047 units. Notably, the decline was more pronounced in Fortuner and Hilux sales, experiencing a 54% MoM drop compared to a 24% decline in sedan sales. This trend continues from the previous pattern observed during FY24, where Toyota’s product mix has shifted from the Fortuner and Hilux segment to the lower-margin sedan segment. The sales decline can be attributed to INDU’s plant shutdown for 24 days in October.

PSMC: Performed better than its Japanese OEM peers, witnessing a 10% MoM decline in sales. However, on a YoY basis, sales still experienced a substantial 52% decrease. Notably, Suzuki Alto sales remained a strong point for the company, showing a slight 2% MoM growth, making it the only model in its portfolio to exhibit growth while all other car models saw a decline. Suzuki faced five days of non-production during the month due to inventory shortages.

HCAR: The company ranked as the weakest performer among the big three Japanese OEMs, witnessing a sharp 66% MoM and 68% YoY decline, with total monthly sales reaching only 459 units. Interestingly, the majority of these sales comprised sedans (Civic and City) rather than SUVs. Like its counterparts, the company experienced eight days of non-production due to supply chain disruptions.

The tractor industry demonstrated resilience in the month, with a total of 5,206 units sold in October. This represented a modest 4% MoM decrease but a significant 175% YoY increase. However, it’s important to note that the YoY numbers might be misleading due to the low base effect last year caused by floods damaging farmer incomes. MTL maintained market share dominance, commanding a 58% market share in October and an overall 59% market share during 4MFY24.

Auto sales, after a strong start in the first few months of the year, have lost momentum due to inventory shortages, leading OEMs to implement non-production days. We anticipate that these issues will be resolved post the release, of the second tranche by the IMF to the government of Pakistan. The recent appreciation of the PKR against US$ prompted auto manufacturers to slightly reduce car prices to stimulate demand. However, persistent high interest rates and inflation continue to weigh on demand. Our Buy recommendation on INDU is maintained with a TP of PKR 1200/sh, considering its robust balance sheet and the upcoming launch of the new Corolla Cross, which is expected to bolster company sales in 2HFY24.

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