In August 2020, the Auto industry sales were flat (up 1% mom) at 11,742 units, while rising a decent 15% yoy. Sales seem to have stabilized during the month after two months of over 30% mom rise. Both premium carmakers, INDU and HCAR, saw sharp yoy increase in sales of 52% / 72%, but were down 18% / 8% mom. PSMC sales, however, rose 20% mom, on the back of improved sales in passenger car segment, while down 9% yoy, to 6,003 units.
INDU sold 867 units of Corolla (down 43% mom), while sales for the Yaris declined to 1,705 units (9% mom). According to INDU’s annual report, orders of nearly 8,000 units of Yaris had been booked. We believe that the Yaris will overshadow Corolla sales for the remainder of FY21 (Xli and Gli had c. 70% share of overall Corolla sales in 9MFY20). Hilux sales rose 26% mom (up a staggering 72% yoy) to 614 units. Fortuner sales declined 17% mom (up a sharp 38%yoy) to 121 units. The relatively stronger yoy performance by INDU can partly be attributed to a low base last year (imposition of FED on below 1,800cc cars in FY20 Budget).
HCAR sold 2,258 units in August, with Civic and City sales of 1,980 units (up a staggering 79% yoy, while down 10% mom). BR-V sales increased by a soft 8% mom, while up 34% yoy to 278 units.
PSMC’s Wagon R and Cultus sales rose 30% mom each (while up a softer 14% yoy / 9% yoy, respectively). Alto sales rose a decent 11% mom, but declined 30% yoy. The drop in Alto sales may be due to the fact that its new model was launched in June 2019 and was well received. PSMC recently announced price increases of c. 2% for Cultus (following Kia’s price hike for the automatic variant of Picanto), which is likely aimed at passing on the PKR depreciation of c.3% since April.
Tractor industry recorded sales of 2,844 units, down 21% mom, while up a decent 12% yoy. The drag in tractor sales was led by AGTL, which saw a sharp decline in sales both mom and yoy of over 50% to 633 units. Sales for MTL were flat mom, while up a staggering 80% yoy to 2,205 units. The sequential decline in tractor sales may be due to the severe torrential rainfall, which affected many crops especially in Sindh, in our view.
Total industry sales have almost reverted to the January 2020 level of 11,964 units (only 2% lower). Looking ahead, we believe sales pickup to normalize from September. However, the sharp monetary easing of 625bps in 2020 so far can lift sales through auto-financing earlier than expected, in our view. In this backdrop, more new models besides Toyota Yaris (potentially new Honda City) could serve to attract consumer interest. We have an Underweight stance on the OEM sector because we think that the 53% rally in stock prices (since May) have priced in a very sharp recovery in sales. We are Neutral on INDU with a TP of PKR1,273/sh and MTL (TP of PKR902/sh) in the tractors space. (IMF Research).