Autos: New model margins outdo softer sales to lift earnings
PSMC/INDU release earnings for 2QCY17/4QFY17 in the backdrop of timid moves in input costs (PkR vs. JPY -4%CYTD & CRC sheet steel prices moving -10%CYTD), and slower sales (total sales for PSMC/INDU -9%/-18%QoQ). Even so, better margins on new models accompanied by price hikes have cushioned margins proving to be a saving grace for earnings. PSMC is slated to release 2QCY17 earnings expected at PkR876mn (EPS:PkR10.65/sh.) up 80%YoY, a factor of improved demand for the relatively nascent Wagon R (sales for 2QCY17 up 78%YoY) and recently launched Cultus (sales up 8%YoY for the quarter), while price increase for both (~3%YoY price increase for Wagon R and 10% new variant price bump for the Cultus) support margin accretion (GM of 12.3% vs. 9.4% for 2QCY16). For INDU, we expect 4QFY17E NPAT of PkR5.21bn (EPS:PkR36.9/sh) up 11%YoY as higher margin products launched from Dec'16 improve GM even though 14%YoY decline in revenues is witnessed. For the sector at large, when analyzed from a YoY perspective, positives emerge in the form of continued uptick in auto financing where Jun'17 figures point to PkR33.1bn added to commercial bank auto loans during FY17, an increase of 30%YoY.
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