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Indus Motor Company (INDU): 1QFY19 EPS Rs44.6, -3% YoY (-15% QoQ); DPS Rs32.5/share (Above expectations)

• Indus Motor Company (INDU) announced its 1QFY19 earnings, wherein it posted EPS of Rs44.6, down by 3%YoY. The result is better than expected despite PKR depreciation taking a toll on gross margins. The company also announced cash dividend of Rs32.5/share. 
• During the quarter, revenue of the company improved by 12% YoY primarily due to recent hikes in car prices, where average price per car has gone up by 10% YoY, as well as 2% volumetric growth. On the other hand, cost of sales were up 16% YoY with average cost per car up by 14% YoY.
• Resultantly, gross profits fell by 7% YoY, with gross margins during the quarter down by 3ppts to 14.5%. Despite significant PKR depreciation since Dec 2017 (~28%) the company was able to maintain its gross margins up until last quarter. However, the effects of PKR depreciation are evident in this quarters gross margin contraction.
• The company contained its admin expenses growth to just 4%, mush lower than the growth in revenue while distribution expenses growth contained at 3% YoY.
• Other income of the company rose by 23% YoY due to the benefit of rising interest rates through investments, in our view.
• On a sequential basis, earnings of the company are down by 15% QoQ. The decline in profits is primarily due to 7% fall in volumes as well as 2.5ppts decline in gross margins.
• We flag, 1) unfavorable movement in exchange rate & commodity prices 2) regulatory changes 3) increased competition from existing and new players, and 4) disruptions in operations of principal company as key risks for the company.