Pakistan Autos _Strained cash flows makes CAPEX difficult
- Updating our expectations upon release of detailed financial accounts for auto OEMs reveals a persistent upswing in industry CAPEX with the last TTM total outlay reaching PkR15.8bn with PSMC/INDU/HCAR contributing 53/38/9%, where PSM's annual report revealed cumulative annual CAPEX of PkR8.5bn, its highest annual outlay ever
- The industry's TTM topline/gross profit growth swayed +18/-10%YoY showcasing the strains on core profitability, where players dealt with pervasive FX fluctuations passed-on to retail prices in an environment of macro-consolidation (monetary tightening, inflationary pressures, lower disposable incomes) with punitive policies discouraging sales growth
- In terms of free-cash flows, increased outflows are evident, as net working capital variations from leaner delivery times and reduced working capital buffers (advances tumble) are reflected in the re-emergence of leverage on PSMC's books (PkR11.3bn as of Dec'18) emphasize the need for strong balance sheets to support outlays
- With the launch of the Alto likely by April-end, we believe PSMC's CAPEX outlays are likely to revert back to maintenance levels (CY19-22 average annual outlays of PkR2.2bn assumed). On its solid balance sheet strength, we prefer INDU, where CAPEX outlays through internal cash flows are paramount to preserving long term profitability.
Pak Suzuki Motor is engaged in assembling, progressive manufacturing and marketing of Suzuki cars, pickups, vans, and 4X4 vehicles. Co.'s product models include Baleno, Margalla, Mehran, Kyber, Ravi Pickup, Bolan Van and Potohar Jeep.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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