Discuss PSX Sector - Automobile Assemblers

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xResearch

Active Member
Apr 9, 2017
1,537
1
38
#51
AKD RESEARCH
12 December 2017


Autos: Nov'17 sales numbers are nothing to complain about

Total automotive industry sales moved -9.6%MoM/+17.6%YoY for Nov'17 with total industry sales clocking in at 21,765 units, taking
cumulative lIMCY17 sales to 229,085 units (+18.6%YoY). Adhering to the trend of seasonal weakness from the month of November, negative movement of -1 1 .2%/d-2.1 %/4.4%/-60.5%/-8.1 % for Passenger Cars/LCVs & Pickups/ Trucks/Buses/Tractors was witnessed. Running a basic time series analysis of MoM moves between Nov vs. Oct between CYl1-16 shows an average total industry sales unit dip of -2.2%MoM, which falls to -7.1% ex CY16 (Rozgar scheme year). Category-wise declines were led by the 1000CC category (- 29.5%MoM/+31.4%YoY) followed by 800CC and below (-12.3%MoM/+16.8%YoY) while the 1300CC+ segment sales sustained momentum (+1.0%MoM/-5.1%YoY). Additionally, for the outgoing month INDU/PSMC/HCAR reported their capacity utilization at 118.8%/91.5%/108.4%, taking the lIMCY17 capacities to 112.4%/87.7%/95.8% for SPLY. We remain upbeat on INDU's prospects for passing on any price hikes (following recent PkR weakness), while capacity expansion raises the OEMS ability to meet any escalation in demand.

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INDU: November sales were up by +4.5%MoM mainly due to the Corolla sales rising +7.6%MoM to 4,537 units. Fortuner/Hilux sales dampened -
17.2%/-6.0%MoM, taking 11 MCY17 sales for both to 2,578/5,373 units, up +409%/+1 I %YoY. Overall INDU sales experienced a minor slip of -0.6%YoY/-0.6%YoY for Nov'17/11MCY17, despite a healthy order book for all variants presenting a case of capacity utilization crest (INDU capacity utilization for 1 1 MCY17 at 1 12%).

PSMC: Sales for the outgoing month for the incumbent fell 17.7%MoM, mainly from failing to keep-up Wagon-R sales which deteriorated -39.2%MoM. This may indicate that the previous month's surge could be driven through ad-hoc fleet sales orders instead of organic retail demand. All variants offered experienced digression on MoM basis with sales for Swift/Cultus/Mehran/Bolan/Ravi down -8.6%/-6.5%/-9.1%/-18.8%/- 7.6%MoM.

HCAR: Sales for Nov'17 remained in-line with capacity utilization leve crossing 100% (108% capacity utilization for the month). Sales for the outgoing month marginally reduced by -1 .1 %MoM while growing +43.9%Yo taking cumulative sales for lIMCY17 to 44,159 units, up +50.9%YoY.

Honda BR-V sales continue to break previous month's records, climbing to 1,248 units, rising +14.4%MoM amidst increasing consumer adoption following the launch. As per our dealer checks, Honda City remains booked till Feb'18 along with Honda Civic booking to Jun'18 presenting a strong order book.

Investment Perspective: INDU's unhindered ability to pass on cost-increases in response to recent PkR devaluation to its consumers, a healthy order book for all variants (pre-booked to at least Feb'18 even after order book cleanup) and upcoming debottleneck activity coming online in I QCY18 to enhance capacity (increasing to 75K/annum), all lead us to believe that demand for INDU's products are to remain intact. Furthermore, the OEMS significant stronghold in terms of market share (current market share of 54% in 1300 & above, 18% in LCVs & Pickup and 100% in SUVs for 11MCY17), make INDU a compelling investment thesis. Our TP of 2,069 offers 23.8% upside, accompanied by FY18/19E D/Y of 6.6/6.6%.

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xResearch

Active Member
Apr 9, 2017
1,537
1
38
#52
AKD RESEARCH
14 December 2017


Autos: "Go out with the old and in with the new"

Prevailing competitive dynamics in the auto space can be said to be nascent at best. Taking cues from past offerings of now defunct OEMS (KIA, Hyundai, Nissan), we construct a case for why new entrants are expected to penetrate the passenger car market. Highlighting the minimal impact these offerings made in the past (largely from idiosyncratic factors hindering proper production runs), we compare their performance to older variants offered by incumbent OEMS (FX, Baleno, Liana, etc.). Lastly, looking at the
average life of variants offered by incumbents (INDU, HCAR, PSMC) the stretched production life of PSMC's offerings remains unsustainable in the face of emerging threats from new entrants, in our view. Comparing local model launches with the international release of variants by incumbents we emphasize the shortening of the product life cycle for local OEMS as an unavoidable trend for local OEMs.

Old variants were a mixed bunch: Looking back at the last two decades we take cues from the performance of obsolete/defunct OEM variants.
Focusing on offerings by KIA, Hyundai (by DFML) and Nissan (GHNL) we collate performance metrics revealing their impact on industry segmentation against models being offered in the past by current OEMS (FX, Baleno, Liana, etc).

Why this time is different: Idiosyncratic factors likely limited production runs for these variants which included unworkable debt arrangements by OEMs leading to inability to manage production ramp-ups and concerns over product quality and acer sales services. Suffice it to say, their second foray into the domestic auto space is expected to carry more weight, particularly when backed by large conglomerate groups (KIA with LUCK, Hyundai with NML and Renault with Al-Futtaim). Even so, between the two, Hyundai's Santro offering was able to garner greater support attributed to its mass-market pricing, low displacement compact design, elucidating
key-opportunities advice for the upcoming entrants.

What incumbents are doing: Amongst the incumbents, in the passenger car segment we highlight the low average life of a model (counting facelifts, model upgrades and new variants) with premium segment OEMS, INDU
and, HCAR being at the forfront of upgrading their offefings frequently.

Investment Perspective: Comparing local model launches with the international release of these variants, we emphasize the shortening of the
product life cycle for local OEMS based on improved designs, additional features offered by their primary parts suppliers globally. HCAR and INDU remain at the forefront of this development, where these factors can bo-
seen as positive catalysts for driving demand for their variants. In the case of PSMC we can see the significant lag (still in the decades) between rolling-out of models globally and at home. INDU remains highly competitive on all dynamics discussed, consistently with up-grading variants (upcoming- debotteneck activity, launch of new 3.0D Fortuner variant) keeping us' steadfast on our TP of PkR2,069/sh which offers a24.4%
 
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xResearch

Active Member
Apr 9, 2017
1,537
1
38
#53
Automobile Assemblers: Woes continue

As per the latest data released by Pakistan Automotive Manufacturers Association (PAMA), total passenger car and LCV sales for Oct’19 clocked-in at 10,932 units recording a decline of 8% MoM and 56% YoY. The decline in auto sales remain much higher than anticipated.

Cumulatively, car sales for 4MFY20 decreased by 45% YoY to 45,567 due to continued lackluster auto sales across all OEMs and weak demand trend for LCVs and 4x4s.

INDU and HCAR saw sales for the month dip to 2,496 (down 61% YoY) and 1,384 units (down 72% YoY), respectively, during Oct’19 while PSMC saw a dip of 48% YoY where launch of Alto has helped the company mitigate wider decline across all variants. On a MoM basis, PSMC and HCAR reported a decline of 15% and 4%, respectively. INDU managed to report an 18% MoM rise owing to increased promotions.

Tractors sales remained under stress as sales for the month stood at 2,861, down 24% MoM and 55% YoY. Tractor sales have recorded a cumulative decline of 39% YoY in 4MFY20.

Trucks and buses sales were lower by 55% YoY while on sequential basis, 299 units were sold for the month, up by 13% MoM. On a cumulative basis, sales dipped by 53% YoY in 4MFY20 on the back slowdown in economic activity.

We maintain our neutral stance on the sector. We believe the current aggressive decline in automobile sales may taper off in 2HFY20.