EUR 12.20 For Business Accounts Only

Indus Motor Company (INDU): 3QFY18 EPS Rs54.3,+2% YoY (+14% QoQ); DPS Rs 32.5/share (In line with expectations)

• INDU sales increased by 12% YoY during 3QFY18, where higher priced variants contributed more towards the sales mix, we estimate. The company sold a total of 16,293 units during 3QFY18, down by 5.5% YoY though up 8.5% sequentially. Along  with the result the company announced  interim cash dividend of Rs32.5/share.
• Amid improving volumes of higher priced variants, average revenue per car also grew by 27% YoY. Thanks to higher than anticipated sales of Fortuner and Revo, revenues witnessed strong growth, while fall in margin was somewhat arrested. Fortunner now constitutes 7% of total unit sales as compared to less than 3.5% last year, while Revo now contributes 14% compared to 9.8% during same period.
• Gross profits increased 2% YoY while gross margins decreased by 174bps to 17.5% from 19.2% YoY in the outgoing quarter. This was largely due to Rupee deprecation of 3% YoY (7%QoQ) against US$ which we believe was not fully passed on in outgoing quarter.
• Finance cost of company jumped up by 11% YoY. This can likely be attributed to interest payments against customer advances  at the rate of prevailing KIBOR +2%, we believe.
• On sequential basis, net revenues increased by 15% while gross margins decreased by 25bps QoQ to 17.5%.
• We flag, 1) unfavorable movement in exchange rate & commodity prices 2) regulatory changes which can allow import of used cars 3) increased competition from existing and new players, and 4) disruptions in operations of principal company as key risks for the company.