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Pakistan Automobiles: 1HFY19 Sales Down 3% YoY

• Pakistan Auto sales are up by 1% YoY in Dec 2018, as against 17% YoY decline in Nov 2018. Moreover, sales are up 11% MoM. This is the first time in 12 years (since Dec 2005) that sales have increased in Dec on a MoM basis. This brings 1HFY19 sales number to 120,066 units, down by 3% YoY. This is the first time in 5 years that sales have declined during the first half of a fiscal year since 1HFY13.
• Despite seemingly better numbers in Dec 2018, we continue to expect significant slowdown in auto sales given 1) deteriorating economy, 2) law barring tax non-filers from purchasing cars and 3) multiple price hikes in the past 12 months. The MoM increase in sales is contrary to historical trend where sales fall in the month of Dec due to seasonal factors. This increase is primarily due to higher sales in PSMC (up 38% MoM).
• Indus Motors (INDU) recorded robust YoY growth of 16% led by 84% YoY and 10% YoY increase in Hilux and Corolla sales, respectively. On the other hand, Fortuner sales declined by 33% YoY. On a monthly basis, volumetric sales are down 3% while sales are up 8% YoY for 1HFY19.
• INDU has been able to maintain its volumetric growth despite the macroeconomic headwinds. This is attributable to the strong order book of the company that existed, where lead times for some variants of the company used to be as much as 5 months.
• However, the lead times have now come down to a month or less for most variants as demand has slowed down and capacity constraints in the plant have been resolved. Moreover, it must be noted that the company continues to carry out capex in order to increase its production capacity to 75k units. Further, we believe that rising interest rates will benefit other income of the company where INDU has a massive ~Rs29bn in net cash and short term investments (net of advances from customers).
• Honda (HCAR) sales fell by 26% YoY and 31% MoM while sales for 1HFY19 fell by 2% YoY. The YoY fall in sales in Dec 2018 was led by 50% YoY lower BR-V sales and 19% YoY lower sales of City and Civic units. HCAR had been showing a robust trend in monthly sales up un-till Oct 2018 (sales up 8% YoY for 4MFY18). However, with thinning of its order book, as depicted by decline in lead times (cars available in 15 days to a month), the company started showing slowdown in sales where in the past 2 months cumulatively, volumetric sales have fallen by 24% YoY.
• Sales of BR-V have shown the most decline as the initial high growth phase of the new car came to an end. Although we expect monthly sales to recover slightly in January, we continue to expect falling volumes YoY. Moreover, it must be noted that the company’s cash and short term investments have fallen to Rs14.3bn as of sep 2018 compared to Rs31.6bn in Mar 2018 due to decline in advances from customers, we believe.