Karachi: Pakistan's automobile sector is poised for a significant decline in profitability, with an expected 35% decrease in earnings quarter-on-quarter, driven primarily by a 16% drop in sales volumes. The sector is anticipated to post earnings of Rs12.6 billion in the first quarter of the fiscal year 2027, marking a modest 1% year-on-year growth, as indicated by a recent press release.
According to JS Global, net sales are projected to rise by 39% year-on-year but fall by 10% quarter-on-quarter to Rs179 billion. The reduction in quarterly sales is attributed to ongoing uncertainty regarding auto policy and delayed clarity over Goods and Services Tax (GST) on Hybrid Electric Vehicles (HEV) and Plug-in Hybrid Electric Vehicles (PHEV). Sales volumes across the Topline Auto Universe reached 26,688 units, reflecting a 30% year-on-year increase but a 16% decline compared to the previous quarter.
The decline in gross margins, averaging 16.4% in the first quarter of FY27 compared to 19.5% a year earlier, is primarily linked to Sazgar Engineering Works' absorption of increased GST on HEV/PHEV models. The absence of one-off gains from a previous SIDC settlement has also led to a 33% quarter-on-quarter drop in other income to Rs5.3 billion. The effective tax rate is expected to rise to approximately 37%.
Individual companies within the sector displayed mixed performance. Indus Motor Company is projected to see a 2% year-on-year and 13% quarter-on-quarter increase in earnings, driven by improved sales volumes and gross margins. Honda Atlas Cars is expected to experience a 67% quarter-on-quarter earnings decline despite a 52% year-on-year increase in volumes. Sazgar Engineering Works anticipates a 56% quarter-on-quarter decline in earnings due to lower sales and gross margins.
Atlas Honda Limited, a highlight within the sector, continues to lead the 2-wheeler segment with record sales volumes, while Millat Tractors Limited is facing a 45% quarter-on-quarter decline in earnings despite a 79% year-on-year increase.
The auto sector's outlook remains uncertain, with future performance closely tied to policy developments and market conditions.