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Indus Motor Company (INDU): 4QFY18 EPS Rs52.6,+50% YoY (-3% QoQ);DPS Rs 45/share (Above expectations)

• Indus Motor Company (INDU) announced its 4QFY18 earnings, wherein it posted EPS of Rs52.6, up by 50%YoY. The result is better than market consensus and our expectations as the company was able to limit its anticipated margin contraction. The company sold a total of 16,641 units during 4QFY18, up by 17% YoY and up 2% QoQ. The company also announced a final cash dividend of Rs45/share.
• Revenue of the company improved by 43% YoY from the twin effect 17% YoY higher volumes and increase in prices of cars, with average price per car higher by 22% YoY.
• Gross profits rose by 47% YoY while gross margins increased by 47bps to 17.0% in the outgoing quarter. This was despite the significant PKR depreciation witnessed in the last 2 quarters as the company was effectively able to pass over the impact to consumers. Moreover, the company was also able to support gross margins by having a greater proportion of high margin cars in the sales mix (21% compared to 15% in same period last year).
• The company also booked 44% YoY higher administrative expenses which is in line with 43% YoY increase in revenue.
• On a full year basis, earnings of the company clocked in at Rs201/share, depicting a 21% YoY increase. The rise in profits is primarily due to 5% increase in volumes as well as inflated car prices due to recent price increases, despite slight gross margin contraction.
• 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.