Since the resumption of economic activities following the COVID19 restrictions, the country’s automobile demand has grown dramatically, with total automobile sales volume increasing by 51% to 82,856 units. The tremendous growth of the agricultural, services, and industrial sectors and a large increase in commodity prices resulted in substantial cash inflows to the urban and rural populations, boosting disposable income and leading to increased automotive demand in the country.

In this report, we review the profitability of automobile companies, including Indus Motor (INDU), Pak Suzuki Motors (PSMC), and Honda Atlas Cars (HCAR), during Oct-Dec 2022. Profitability is up by a massive 15%YoY in Oct-Dec’21 The bottom-line of the auto sector grew by a colossal 15%YoY to Rs5.69bn during Oct-Dec 21 as compared to Rs4.92bn during Oct-Dec’20.

The phenomenal growth in profitability is attributed to an increase in sales volume by 51%YoY. Furthermore, the increased inflows from client bookings enhanced the return on investment/deposits, reflected in the sector’s other income. The depreciation in PKR against major currencies, skyrocketing commodity prices, higher freight cost and rise in additional production cost reduced the gross margins of the sector as most of the companies was unable to pass on the full impact of the higher cost of production. The gross margins remained subdued, down by 3%YoY to 5.3% during Oct-Dec 21. Similarly, the net margins of the sector also reduced to 4% in 2QFY22 from 5.5% in the SPLY.

INDU: The star performer among peers, Indus Motor, was the top assembler posting a sturdy increase in profitability of 61%YoY to Rs4.8bn. Better sales volume of Yaris variant, an increase in sales prices, and solid other income remained the major contributors behind the healthy growth of the bottom line.

Outlook:

Advance orders drive profit. The strong demand for vehicles on the back of economic recovery remained the major factor behind the volume growth. Moreover, introducing the new model by different companies would also drive sales going forward.

Courtesy – Spectrum Securities Limited