Karachi, July 14, 2021 (PPI-OT): Pakistan Autos: Strong rebound in Auto Industry

June’21 total industry sales of 19,173 vehicles (-6%MoM/34%YoY), consisting of 11,569 passenger cars (-11%MoM/58%YoY), 2,181 LCVs (-21%MoM/59%YoY), and 352 trucks (-2%MoM/45%YoY) where sequential slowdown was likely on the back of uncertainty in pass-on of budgetary measures to consumers.

FY21 total industry sales of 236,390 units (+60%YoY) consist of 151,182 passenger vehicles (+57%YoY), 30,215 LCVs (+99%YoY) and 3,695 trucks (+20%YoY), showing a V shaped recovery in demand after hitting the rock bottom in FY20 in the backdrop of industry shutdowns due to Covid-19.

During FY21, passenger car sales witnessed strong resilience of premium segment vehicle market (1,300CC+ segment sales depicted a robust recovery of 91%YoY) whereas recovery of 56%YoY in 1000cc segment supported the sales momentum. The lowest growth was witnessed in below 800cc segment as sales clocked in at 45,916 units in contrast to 37,779 units in FY20, up only 22%YoY. Recently announced budgetary measures, however, could trigger demand in the segment.

Amongst major OEMs, PSMC/INDU/HCAR sold 88,032/57,236/29,291 vehicles during FY21, up 34/102/79%YoY, implying annual plant utilization (on stated double shift capacity) of 59/88/59% vs. 44/44/33% for FY20 as the industry dealt with pandemic stricken hurdles.

While low interest rates and stable prices amidst muted PkR depreciation (2%YoY vs 16%YoY in FY20) led to the revival in sales of local OEM’s, however, competitive pressures have now come to the fore. To get ahead of the game, we expect the local OEMs to bring major innovation in their product offerings by introducing newer models more frequently and adopting hybrid technology to increase their shrinking margins. Our top pick for the sector is INDU (TP:1,840 – 50% upside and 9% DY).