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INDU_1HFY24 Analyst Briefing takeaways ,(AKD Off the Analyst's Desk Mar 08, 2024)

Indus Motor Company Limited (INDU) held its analyst briefing earlier today to discuss their 
1HFY24 financial results and apprise investors about their future outlook. Here are the key 
highlights from the call:

To recall, company posted a PAT of PkR5.0bn (PkR63.1/sh) in 1HFY24 compared to PkR2.6bn (PkR33.4/sh) in SPLY. This surge in profitability is attributable to enhanced gross margins, where 1HFY23’s gross margins remained negative due to unpassed cost impacts.

As per management, the 61% annual slump in sales volumes during 1HFY24 was mainly due to subdued demand resulting from increased prices, higher duties and taxes, high interest rates, and limited availability of auto finance. 

Additionally, the rising imports of used cars are further dampening local auto demand. Management informed that following the lapse of RD and ACD in Mar’23, imports of used cars have significantly escalated, with monthly import volumes surging to 2k-3k units, up from <800units/month previously. While a total of 6.6k units were imported in FY23, imports have surged to 16.6k units in 1HFY24.

Management has informed they are not facing any issues with LC clearances at the moment and their recent plant closure was due to one-off supply chain issues caused by shipment delays.

According to management, order intake for the Corolla Cross (launched in Dec’23) exceeds expectations. Additionally, they expect the monthly sales volumes of the Corolla Cross to remain in the range of 600-1,000 units.

Management also mentioned that the localization rates for the Corolla and Yaris are >60% and 55%, respectively. Furthermore, localization rates for the Cross and IMV currently stand at 50% and 40%, respectively.

Moreover, with the Board of Directors' approval of a PkR3bn investment to enhance localization, there will likely be an increase in localized components. However, it is difficult to quantify this increase as of now.

Management guided that they are currently working on export plans and have submitted proposals to the government.

As per management, company is working on plans for the export of several items, including leather products, CBU units to African countries, and other service parts.

Regarding the recent release of an SRO, where the GoP has increased GST to 25% on cars above PkR4mn in value, management stated that they are currently reviewing the situation. Any decision on this matter will be communicated publicly in the coming days. To note, 1,300cc variants of the Yaris fall under this category.

Management guided that the variance in the company's gross margins from new entrants could be due to duty protection incentives offered to the latter. However, they expect that when these incentives expire, a level playing field will likely ensue.

Going forward, management expects 2024 and 2025 to be challenging due to higher interest rates and deteriorating purchasing power. Therefore, volume recovery is expected to take some time.