Karachi, June 17, 2022 (PPI-OT): Pakistan Autos: Projections incorporating recent macro-economic developments

We revisit our investment case for the OEMs under our coverage. Incorporating recent macroeconomic developments, with RF of 15.5% and USD/PkR parity of 198 for FY23 and 210 for FY24. Incorporating these assumptions, we have revised our target prices for PSMC, HCAR and INDU for Jun’23, now PkR165/sh, PkR172/sh and PkR1,392/sh respectively.

Demand for the automobile industry is expected to reduce in FY23, mainly owing to monetary tightening by the SBP and budgetary measures by the Govt. Hence, FY23 is going to be a testing year for the sector with demand taking a hit, while gross margins are expected to remain under stress.

Beyond the next 2 years, we expect purchasing power of the consumers to rebound, when interest rates and inflation move their way back to normalcy. With hikes in costs expected to be passed-on to consumers and as automobiles continue to be viewed as an asset-class in Pakistan, long-term prospects of the industry remain encouraging.

Our top pick for the sector remains INDU, currently offering a total return of 29% (D/Y 13%), due to strong income from ST Investments, brand recognition sustaining demand, and relatively less dependence on sales through auto-financing.