Autos: Strong balance sheet = stronger investment case
Underpinning strong earnings quality (FCFE/sh upon reported EPS ratio at 0.7x for the industry), we study the underlying asset quality measures (industry days inventory/current ratio of 6.5/2.1x for 2018) for at INDU & PSMC. Looking back, we highlight the relatively low drag on cash flow generation from outflows in financing (recent surge is dividend driven) and prominence of investing outflows (CAPEX driven where cumulative additions at PkR4.0b p.a. over next three years). To stave off increasing competitive forces, auto OEMs are expected to face impediments to balance sheet & earnings quality, where the presence of hefty capital cushions though investments in liquid, near cash items (PIBs of varying maturities, mutual funds etc) are catalysts to preserving balance sheet health. It has been observed, PSMC & INDU have offered a narrower price range for offerings, which has increasingly widened, with more variants on offer at higher price-points. This suggests a strategy seen globally in the automobile space, where lower margins (or even losses) are prevalent for entry/low price point offerings, made up for with higher/premium variants. Encouraging demand for INDU's Cuore (economy segment low price point discontinued in FY12) followed by CKD of the high-end Fortuner (launched in FY13), lend weight to our bullish case for consistent secular demand growth, regardless of variant class emanating from the OEMs offerrings over the long term.
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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