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Topline Flash Note: Pakistan Suzuki Motor Company: Corporate Briefing Session Notes

• Pak Suzuki Motor Company Limited (PSMC) today conducted a Corporate Briefing session, where the management discussed the future outlook.
• In 2019, PSMC’s car sales declined by 19% YoY to 113,270 units. The major decline was witnessed in 1300cc category, where sales of Swift fell by 30% YoY.  In the 1000cc category, volumes for Cultus & Wagon-R declined by 14% YoY & 32% YoY, respectively. PSMC fared much better in Bikes compared to Automobiles during 2019, as bike sales volume were down by only 2% YoY to 22,589 units.
• Overall revenues declined by 3% YoY in 2019, where drop in revenues due to fall in sales volume was Rs23.3bn while price hikes contributed around Rs10bn of additional revenues during the year.
• The 1Q2020 has also witnessed a declining trend as total sales volumes fell by 63% YoY during the period. The market share of PSMC has declined to 44% as compared to 56% in 1Q2019.
• In 2019, the devaluation of PKR against JPY & USD by 24.6% YoY & 18.6% YoY respectively, increased the cost of manufacturing cost for the company, which depleted the gross margins by 4ppts YoY. To highlight, company has 40% of its total imports denominated in JPY. The current localization level on the Alto variant is ~59%, however the company expects this to increase gradually over time.
• Additional Custom Duties on raw material imports were imposed in the range of 2-7% in FY20 budget, which also created pressure in terms of cost. The company clarified that these duties have not been removed in the FY21 budget.
• Company highlighted that no major CAPEX is expected, to enhance current capacity as due to low demand current utilization levels are very low.
• The lockdown amid COVID-19 has impacted the sales volume negatively as reflected in monthly sales of April & May-2020. The management believes pickup in sales volume will depend on improvement in current situation of COVID-19. Any pickup in sales volume due to recent monetary easing by SBP has not been witnessed mainly due to the impact of COVID-19.

The current orders on hand are of ~2,000 units, which mainly comprise of Alto & Cultus. Company has recently resumed its production. The production output will be decided as per the market demand to avoid any extra inventory levels.