Pakistan Autos: Weak profitability cracks cash flows, (AKD Daily, Sep 20, 2019)
- 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 PkR14.6bn with PSMC/INDU/HCAR contributing 34/60/7%,
- The industry’s TTM topline/gross profit growth swayed +5.2/-31.1%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 likely to moderate going forward as OEMs extend their payables cycles, with the outlook for the PkR vs. US$ remaining relatively controlled (as opposed to a year ago)
- News reports and management notices to dealers from PSMC and INDU confirming production slowdowns are common practice, as OEMs have limited inventory handling capacity and dealer inventories (a system common in larger markets) is largely non-existent. INDU, while depleting cash and ST investment buffers, still has PkR23.4bn in ST investments (vs. PkR55.03bn in FY18) allowing it considerable leeway in concluding current CAPEX plans.
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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.
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