Pakistan Automobile: Overreaction warrants revisit!
- We dig down on possible scenarios on auto sales to analyze whether the emerging risk on auto sales warrants significant underperformance of 14% in BMA auto universe since the budget announcement.
- To recall, Budget FY19 barred non-filers from buying new cars from 1-July’18, where industry estimates suggest that non-filers contribute 40-45% of automobile sales.
- Our analysis suggests market is incorporating a worst-case in terms of volumes and margins outlook in FY19.
- We highlight that our base-case estimates already incorporate downtrend in margins from current cycle’s peak incorporating long term exchange rate and volume growth assumptions with increased competition, where we expect a drop of 8% in 1QFY19 total volumes. Consequently, we see margins to remain firm in FY19, assuming alternate channels of buying to come into play.
- Considering macro headwinds and local environment getting more competitive in terms of competition post entry of new players, our top pick remains INDU (TP: PKR1,938/sh) considering strong balance sheet, superior pricing power and attractive D/Y of 8% among other OEMs.
Indus Motor is engaged in the assembly, progressive manufacture, import and marketing of Toyota motor vehicles. Co. is also the sole distributor of Toyota and Daihatsu vehicles in Pakistan.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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