Karachi, July 06, 2022 (PPI-OT): Autos: Aggressive pre-buying drives Jun-2022 sales

Auto sales for Jun-2022 are expected to clock in at 26,200 units, up 25% MoM (+102% YoY), taking cumulative sales for FY22 to 264,243 units (+51% YoY).

The spike in volumes is likely to be driven by aggressive pre-buying in anticipation of price hikes and taxes, along with higher demand for recently launched models.

We anticipate a declining trend in overall auto sales volume from here on, as the impact of 1) interest rates, 2) measures taken by the regulators to curb auto imports and 3) cost led price hikes weigh in.

Expected price hikes spark aggressive pre buying

Auto sales for Jun-2022 are expected to clock in at 26,200units, up 25% compared to the previous month. Cumulative growth for FY22 is expected to clock in at 51% YoY, reaching 264,243 units. The spike in volumes is likely to be driven by double-digit growth in HCAR and PSMC, with the latter posting record high sales owing to aggressive pre-buying, in anticipation of price hikes and taxes along with higher demand for recently launched models. INDU is anticipated to report single-digit growth, largely attributable to the pre buying mentioned above and higher demand for Corolla and Hilux.

Looking at recent past, we saw similar consumer behaviour of pre-buying during Dec-2021 and Mar-2022 where volumes spiked in a similar fashion to the 27k level followed by a subsequent decline of 25% and 17%, respectively, in the following months in both cases. We expect a similar trend in July-2022 as well.

Margins and volumes to remain under pressure

Despite robust sales expectation during Jun-2022 we expect the trend to wear off in coming months owing to various factors which is also evident from closure of advance bookings by most auto companies (INDU, PSMC and KIA) citing uncertainty and higher production costs as culprits. We expect demand to drop by 25% YoY during FY23 as the impact of 1) interest rates, 2) measures taken by the regulators to curb auto imports and 3) cost led price hikes weigh in. While volumes may take a dip, we project sector margins to remain stable in coming quarters. In an attempt to maintain margins, the steep PKR devaluation and surging freight rates have led auto manufacturers to announce multiple rounds of price hikes in the last six to seven months. While impact of price hikes announced in Nov-2021 have been reflected in 3QFY22, we expect the latter price hikes to support the sector’s 4QFY22 margins.