Karachi, September 08, 2023 (PPI-OT): Autos: Aug-2023 likely to rebound to 5-month high on low base

We preview auto sales volume for Aug-2023 where we expect sales for the three listed OEMs to clock in at 6.6k units, a 32% YoY decline over suppressed demand due to macro challenges. On a MoM basis, sales are however expected to improve by 53%, amid relaxation on opening of LCs for imports.

Despite recent signs of supply side recovery, the auto sector's path to normalcy remains uncertain. Moreover, demand-related challenges are expected to persist and continue to impact sales volumes in the coming months

We maintain our Sell stance on the sector where we expect continuation of subdued demand to keep limited profit growth in the sector.

Listed OEMs to see MoM improvement in volumes

We preview auto sales volume for Aug-2023 where we foresee sales for the big three OEMs to clock in at 6.6k units - possibly a 5-month high, up 53% MoM. This improvement can be attributed to auto makers witnessing ease in raw material procurement amid relaxation on opening of Letters of Credit (LCs) for imports. Sales, however, continued to decline on a YoY basis registering a 32% decrease.

Pakistan's automobile sector faces significant challenges on the demand front due to elevated prices, expensive auto financing and increased taxes. Sales for HCAR are expected to witness a decline of 63% on a YoY basis, however, on a MoM basis, sales improved by 37% over lower base. INDU is expected to see its volumes dropping 61% YoY whereas on a MoM basis, volumes are expected to improve by 10%.

PSMC, known for its range of affordable vehicles tailored to Pakistan's middle-class population, is expected to see a notable improvement in its volumes. This improvement is anticipated to be 11% higher compared to the same period last year and a remarkable 80% increase on a MoM basis. A likely key factor contributing to PSMC's sales is better fuel efficiency offered by Suzuki cars. This attribute now holds significant importance for Pakistani consumers, particularly in light of the increasing fuel prices. The company’s auto plant remained operational during August however, the Motorcycle plant was inoperative for 28 days.

Challenges on the demand front persist

Our Sell recommendation on the sector remains unchanged owing to the existing environment of sluggish demand with rapid inflation, expensive auto finance and higher taxes. Despite signs of supply side recovery, the path to normalcy for the sector remains uncertain as demand-related challenges are expected to negatively impact sales volumes in the coming months.