EUR 4.23 For Business Accounts Only

Indus Motor Company (INDU): 2QFY19 EPS Rs43.3, -9% YoY (-3% QoQ); 1HFY19 EPS 87.9, -6% YoY, Interim cash dividend of Rs25/share (In line with expectations)

 

• Indus Motor Company (INDU) announced its 2QFY19 earnings, wherein it posted EPS of Rs43.3, down by 9% YoY. The result is in line with expectation as gains in volumetric sales were off-set by gross margins deterioration. The company also announced cash dividend of Rs25/share. 
• During the outgoing quarter, revenue of the company increased by 29% YoY driven by both volumetric growth as well as price hikes. To note, during the quarter unit sales have gone up by 14% YoY while average price per car has gone up by 14% YoY as well. At the same time, cost of sales were up 38% YoY with average cost per car up by 21% YoY.
• Resultantly, gross profits fell by 11% YoY, with gross margins during the quarter down by 5.5ppts to 12.2%. The gross margin erosion is attributable to PKR depreciation of more than 20%.
• Distribution expenses rose by 14% YoY in line with 14% increase in unit sales. However, admin expenses fell by 15% YoY, supporting the bottom-line.
• Other income of the company rose by 14% 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 3% QoQ. Despite 12% increase in unit sales QoQ, gross margin contraction by 2.2ppts led to decline in earnings.
• 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.