Karachi, July 12, 2023 (PPI-OT): Autos: Sales remain depressed during FY23
We review auto sales volume for June-2023 where sales clocked in at 6k units, up 10% MoM. The improvement comes amid ease off in import restrictions. Cumulative volume for FY23, however, remained dull clocking in at 125k units, a 55% YoY decline, as the fiscal year witnessed suppressed demand over macro challenges, in addition to restricted supply.
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 negatively impact sales volumes in the coming months.
Anticipated improvement in the country's foreign exchange reserves, supported by progress on the IMF program, is expected to lead to a normalization of imports. We expect the ease off in supply constraints to be a good omen for the auto sector and an upside trigger to our base investment thesis.
Volumes improved 10% MoM on relaxation of imports
We review auto sales volume for Jun-2023 where sales clocked in at 6k units, up 10% MoM. The improvement comes as auto makers witness ease in raw material procurement amid relaxation on opening of LC’s for imports. Sales for FY23 remained in negative territory clocking in at 125k units, down 55% YoY.
Sales for Honda Atlas Car (HCAR) witnessed a substantial MoM growth, with sales soaring by a remarkable 253% to reach 307 units in June 2023. This notable increase can be primarily attributed to relatively low sales base in the previous month, and better availability of completely knocked down (CKD) parts. Sales for June compared to last year remained depressed with a 92% YoY decline. Consequently, FY23 sales for HCAR amounted to 16.9k units, reflecting a significant YoY decline of 57%.
During FY23, Pak Suzuki Motor Company (PSMC) experienced a decline of 57% YoY in sales, with total units sold amounting to 65.4k. Similarly, Indus Motors (INDU) observed a YoY decrease of 58% in the twelve months, with sales volumes reaching 31.1k units. Due to challenges on the import front, all these companies faced multiple plant closures during the past twelve months.
Tractor sales recorded a significant decline of 48% YoY during FY23, with total units sold clocking at ~31k.
Supply side woes may subside, demand concerns persist
We maintain our Sell stance on the sector where we expect the impact of subdued demand to keep profits in the sector restricted. Weak and struggling demand amid rapid price escalation, expensive auto financing, higher taxes and deteriorating macros remain as the major woes for Pakistan’s automobile sector. 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 negatively impact sales volumes in the coming months. In addition to sluggish volumes, high inflation and depreciation of the PKR are likely to keep margins under pressure in the upcoming quarters.
To address some of the concerns, the sector is now tapping fresh avenues of sales diversification. Starting from July, INDU has entered into an agreement with Toyota Egypt for the export of automotive products. This development is particularly significant as the auto industry faces challenges related to inventory shortages caused by import constraints due to the country's low foreign exchange reserves.