Karachi, July 13, 2021 (PPI-OT): Pakistan Autos: A glimpse of Auto Policy 2021-26

Elaborating on the dimensions of the much-awaited auto policy (likely to be tabled in the cabinet next month), the Govt. seems laser-focused on small-segment and EV section of passenger vehicles. Some of the measures have already been incorporated in FY22 Budget while the rest potentially covers relaxation in import duties of raw materials and import of CBU units in EV segment.

In the backdrop of potential new incentives, Govt. has hinted upon removal of additional custom duty (ACD) on import of parts for cars up to 1000cc, while reduced to 2% for vehicles above 1000cc. Auto parts manufacturers (THALL, LOADS, AGIL) are likely to be the key beneficiary from the said measures though pass-on of cost reduction cannot be ruled out.

Govt. has continued with the incentives offered to new entrants in the previous Auto policy which is likely to firm up competition in the local space (Changan, KIA, Hyndai, MG etc.), diminishing pricing power of existing players. Hence, we expect newer models to be rolled out frequently, particularly in the hybrid space, by existing players going forward.

Our top pick for the sector is INDU (TP: PkR1,840/sh – 50% upside and 9% DY) where features such as strong dealership network and ability to absorb cost pressures (highest GMs in the industry) amid prompt upgrades and innovations in existing product offerings are likely to outstand the company in the recent auto upcycle.