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INDU: Better cost controls bolster margins and bottomline

• Indus Motor Company Limited (INDU) announced its results earlier today, registering profitability of PKR2,679mn (EPS: PKR 34.09) during 3QFY20 as compared to earnings of PKR 3,345mn (EPS: PKR 42.56) last year, outperforming market expectations. On a cumulative basis, INDU’s earnings eroded by 51% YoY to PKR 4,984mn (EPS: PKR63.41) for 9MFY20.

• Along with the result, the company also announced interim cash dividend of PKR10/sh, taking cumulative payout to PKR23/sh.

• Revenues stood at PKR33.1bn during 3QIFY20, down 36% YoY after witnessing a dip of 34% YoY in vehicle sales during the period under review. On a sequential basis, a 49% jump in volumes drove the topline to PKR33.1bn, up 50% QoQ.

• Gross margins of the company stood at 12.1% in 3QFY20 expanding by 415bps on sequential basis. We attribute the enhanced margins to better control on fixed costs and efficient supply chain management. Margins stood at 10.3% for 9MFY20 down 1.9pps compared to same period last year. 

• Other income saw a robust increase to PKR1.1bn, up 2x on QoQ basis from likely healthy cash balance available on its balance sheet. It is pertinent to note that contribution to profitability from core operations has shrunk for the period of 9MFY20 with other income making up 33% of profits before taxation compared to 21% last year. 

• We continue to see overhang of weak economic environment with automobile sales undershooting our earlier estimates by a substantial margin amid outbreak of pandemic. We continue to see depressed automobile volumes, likely delaying our theme of economic recovery beyond CY20. We have a Neutral rating on the scrip.