Karachi, December 13, 2022 (PPI-OT): Autos: Sales in Nov-2022 rebound 36% MoM amid higher operating days
We review auto sales volume for Nov-2022 where sales improved to 18k units, up 36% MoM. The improvement comes on the back of higher operating days as automakers witnessed no plant closures during Nov-2022 as compared to 8-13 days of plant closure for some players during Oct-2022.
Going forward, increase in interest rate by SBP by 100bp to 16% is expected to further dent auto sales through auto financing.
With concerns on both the demand and supply side, we expect auto volumes to remain under pressure adding up to a cumulative decline of up to 50% YoY during FY23.
Sales volume reflect impact of higher operating days
We review auto sales volume for Nov-2022 where sales improved to 18k units, up 36% MoM. The improvement comes on the back of higher operating days as auto companies witnessed no plant shutdowns during the month, contrary to the past few months. On a YoY basis, sales remained in the negative territory, down 3%, taking 5MFY23 sales to 66k units, down 39% YoY.
Pak Suzuki Motor Company (PSMC) witnessed the highest improvement of 55% MoM, as its plant remained operational during Nov-2022 as compared to closure of 8 days in Oct-2022. Similarly, Honda Atlas Cars Ltd (HCAR) witnessed a rebound in sales of 38% MoM. The sales rebound comes as the company’s plant remained operational during Nov-2022 as compared to plant shutdown of 13 days in Oct-2022. Indus Motor Company Ltd (INDU) on the other hand witnessed a decline in sales of 4% MoM as the company’s plant remained operational throughout Nov-2022 and Oct-2022.
Auto financing to become more costly
Contrary to expectation, the SBP in its latest MPC meeting raised interest rates further by 100bp to 16% in a bid to control inflation. Although the share of auto financing has shrunk significantly over the past year’s monetary tightening cycle (down from 35-40% to 15%) the measure is expected to further negatively impact demand for vehicles in the sector. To recall, total outstanding loans for auto sector in Oct-2022 clocked in at Rs345bn, down 1% MoM while YoY growth in the same has slowed down from 46% in Sept-2021 (start of monetary tightening and curbs by regulators) to 0.3% in Oct-2022.
Supply side worries to subside, demand woes to remain
With signs of improvement on the supply side, where the automakers witnessed no plant shutdowns throughout Nov-2022, we expect the ongoing issues to normalize by the end of the calendar year. Thereon we expect issues on the demand side to continue to hold down volumes throughout the remaining part of the year adding up to a cumulative decline of up to 50% YoY during FY23.
Moreover, with dull volumes coupled with high inflation and PKR devaluation, we foresee margins to remain under pressure in the upcoming quarters as well. Compensation to customers on late deliveries, which has further dented profitability for the sector during 1QFY23 is expected to normalize in the coming quarters as delivery times for vehicles become more manageable.