Karachi, November 10, 2022 (PPI-OT): Oct-22 Auto sales: Higher operating days to drive 28% MoM increase
We preview Auto sales volume for Oct-2022, where we foresee sales to climb to 12.7k units, up 28% MoM (down 36% YoY), amid higher operating days.
To recall, PSMC’s plant remained closed for 8 days during Oct-2022 as compared to 18 days in Sept-2022. INDU’s plant remained operational throughout Oct-2022 as against 15-day closure in Sept-2022 whereas HCAR, on the other hand, announced shut down of its plant for 13 days in Oct-2022 as compared to 3-4 non-production days in Sept-2022.
INDU’s management, in its recent Corporate Briefing Session apprised there is no update regarding timeline for relaxation on import of CKD kits with the import quota currently still in place. Hence, with pressure on both supply and demand side we foresee demand for autos to witness a decline of up to 50% YoY in the ongoing fiscal year.
Higher operating days positively impact sales volume
We preview auto sales volume for Oct-2022 where we foresee sales to improve to 12.7k units, up 28% MoM. The improvement comes on the back of higher operating days as auto companies try to improve inventory management and smooth out production. On a YoY basis, sales are expected to remain in the negative territory, down 36%, taking 4MFY23E sales down 49% YoY.
Pak Suzuki Motor Company (PSMC) is likely to witness the highest improvement of 33% MoM, as its plant remained closed for 8 days this month as compared to 18 days in Sept-2022. Similarly, Indus Motor Company Ltd (INDU) plant remained operational throughout the month as compared to plant closure of 15 days in Sept- 2022 reflecting sales improvement of 26% MoM, whereas Honda Atlas Cars Ltd (HCAR) will likely witness the smallest rebound in sales of 9% MoM. The sales rebound comes despite plant shutdown of 13 days in Oct-2022 as compared to 3- 4 non-production days in Sept-2022.
Auto financing reflects downturn in demand
Management of INDU, in its recently held Analyst Briefing for 1QFY23 discussed how higher interest rates and curbs on auto financing by regulators continue to take a toll on demand for auto financing, which has come down from 35-40% pre- monetary tightening cycle to now 15% mix in sales. Total outstanding loans for auto sector in Sept-2022 clocked in at Rs350bn, 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 4% in Sept-2022.
Ambiguity on import quota relaxation keeps outlook gloomy
Raw material unavailability continues to remain an unwarranted burden for the auto makers with the sector already struggling for demand in tough economic conditions. As per the management of INDU there has been no update regarding the timeline for relaxation on CKD kits import with the import quota currently still in place.
With pressure on both supply and demand side and the additional impact of floods, we foresee demand for autos to witness a decline of up to 50% YoY in 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.