Auto: Regulatory concern to restrict upside; Reiterate U/P
Latest data by PAMA indicates total auto sales increased by 2% YoY but were flat MoM at 12,250 units in Apr-14, mainly due to sharp decline in Corolla sales by 19% YoY in anticipation of new model launch in Oct-14.
The launch of Wagon R by PSMC was the highlight of the month, with 309 cars being sold; sales of PSMC beat the overall industry with volumes up 18%YoY in Apr-14 and +31%/+42%YoY in Mehran/Cultus sales in Jan-Apr period.
Any changes on policy/taxes front in upcoming FY15 Budget will be key swing factor for volumes from here on. As per news, govt is planning to reduce import duty on cars on all segments, which will dent the performance of local players.
Investors are keeping a close eye on the regulatory front, where uncertainty could be a drag on near-term stock performance. KASB Securities Limited reiterates U/P on both PSMC and Indus. PSMC is trading at 7.3x 2014E earnings and 10% premium to KASB Securities Limited's PO while Indus is trading at a FY14E P/E of 9.8x and 7% premium to KASB Securities Limited's PO.
Auto sales up 2% YoY in Apr-14
According to the data released by PAMA, sales of locally assembled cars and LCVs increased by 2% YoY to 12,250 units in April-14. The marginal increase is mainly due to a sharp 19% YoY/ 22% MoM decline in Corolla sales as buyers wait for the launch of new model of Corolla in Oct-14.
HCAR's volumes increased by 10% (sales for both Civic and City increased by 10% and 9% YoY in April-14), where the up-tick is due to deliveries picking-up post year-end bookings. Sales of Pak Suzuki remained the best performer in the industry, with 56% market share and 18%YoY/ 23%MoM growth in volumes during the month. Key highlight is the recent rebound in its small car sales with Mehran sales improving by 31% YoY and Cultus by 42% YoY in Jan-Apr 2014 period.
Units Apr14 Apr13 YoY Mar14 MoM 10MFY14 10MFY13 YoY
Pak Suzuki 7,359 6,261 18% 5,992 23% 62,873 61,689 2%
Indus 2,854 3,936 27% 4,051 30% 29,581 29,762 1%
HCAR 1,950 1,780 10% 1,971 1% 18,742 16,544 13%
Others 87 34 156% 258 -66% 1,277 347 268%
Totalsales 12,250 12,011 2% 12,272 0% 112,473 108,342 4%
Cars 9,685 9,628 1% 9,029 7% 85,820 85,031 1%
LCVs+ 4x4 2,565 2,383 8% 3,243 21% 26,653 23,311 14%
Tractors 4,460 4,676 5% 2,998 49% 27,943 39,955 30%
Source: PAMA, KASB Research
Impressive start by Suzuki Wagon R Â€¦ all eyes on introduction of new Corolla in Oct
The highlight of the month is the launch of Wagon R (1000cc) by PSMC, which saw reasonable interest from the customers; in just 13 days, PSMC managed to sell 309 cars (out of 414 car produced during April). Importantly, as of now, the sales of Wagon R have not been in terms of the 1000cc Cultus, which have also shown impressive growth of 42% MoM. Now all eyes are set on the launch of new Corolla in Oct-14 (Price range of PRs2.2-2.4mn) and expectation of new models in 800cc and 1000cc segments.
But concerns remain on the policy/regulatory side
While the demand side of the equation remains robust due to a good harvesting year, improved economic outlook and introduction of new models, KASB Securities Limited believes volumes could remain depressed in the near to medium term on account of any changes in policy in the upcoming budget/ reduction in import duties/ AIDP II policy. As per the news reports, the govt is planning to reduce import duty on all segments, which could hurt the local industry.
Reiterating KASB Securities Limited's Underperform stance
KASB Securities Limited's are reiterating KASB Securities Limited underperform stance on both PSMC and Indus where both these stocks are trading at a premium to KASB Securities Limited's POs. In KASB Securities Limited's view, valuations are expensive with PSMC trading at a P/E of 7.3x 2014E and Indus is trading at a P/E of 7.9xFY15E. KASB Securities Limited also believes that despite robust demand the ongoing noise on regulatory front and delays in announcement of much awaited AIDP-II, investors should remain cautious on the auto sector.