INDU announced its results for FY17, where EPS clocked in at PKR 165.41, up by 14% YoY. Company also announced a final cash dividend of PKR 35 per share.
The net sales revenue increased from PKR 108.7bn to PKR 112.3bn mainly due to new product launches (New Hilux in Nov’16 and New Fortuner in Jan’17) and strong sales in trading business.
The auto industry has overall increased by 16% YoY in FY16-17, where 82% of the growth is because of PM scheme. Company forecasts the growth for the market to be 8% for FY18.
Market share of the three giants in FY17 are as follows; Suzuki 39% (+1pps YoY), Honda 13% (+3pps YoY), Toyota 21% (-5pps YoY).
The company expects FY18 to remain strong on account of 1) rapid improvement in energy and infrastructure courtesy CPEC 2) availability of consumer finance at low rates and 3) favorable macroeconomic environment due to low inflation.
Key challenges being faced by the company are 1) Huge growth in imports, 2) widening trade deficit and 3) fixed duty regime for used imported cars.
The de-bottlenecking of the paint shop will be done by the end of January 2018, the full impact however will come in FY19. The de-bottlenecking will increase the efficiency of the plant.
It is to be noted that currently company produces 65k unit working overtime. Post de-bottlenecking, company will be able to produce 65k without any over-time involved. If company then involves overtime the capacity will be increased by 10-12k tons.
Talking about the exchange rate, company said that if currency depreciates to an extent which cannot be absorbed by the company (above PKR 107/USD), then certainly it will be reflected by increase in prices.
INDU: 1QFY18E Profitability to grow by 13% YoY
The meeting of Indus Motors (INDU) is scheduled on 27th Oct’17 to discuss 1QFY18 result. We expect the company to post an earnings of PKR 3,436mn (EPS: PKR 43.71) depicting a jump of 25% QoQ / 13% YoY. This is primarily owed to uptick in sales of cars during 1QFY18 (15,087 vs. 14,385 units) given higher than anticipated sales of new Fortuner (up by 446% YoY) and slight recovery in sales of Corolla (up 1% YoY). Moreover, we expect margins to increase 80bps YoY to 17% due to increase in car prices effective from Aug’17 as compared to same period last year. On quarterly basis, topline is expected to grow by 11% QoQ owing to launch of face lifted 11th generation Corolla (sales units up by 7% QoQ to 12,765 vs 11,979) and Fortuner sales which jumped 40% QoQ. Gross margins are expected to rise owing to increase in car prices which will fade the impact of higher steel price while exchange rate remained stable in the period under review. Along with this, we also expect the company to announce dividend of PKR 30.00/sh vs PKR 25.00/sh in SPLY.
INDU Analyst Briefing Key Takeaways Event
Indus Motor Company (INDU PA) held an analyst briefing today to discuss the results for 3QFY20 along with the future outlook of the company.
INDU’s net sales declined by 20% YoY from Rs41.5bn in 3QFY19 to Rs33.0bn in 3QFY20 primarily due to decline in volumes. However, the company’s margins inched up by 0.4/4.8ppts YoY/QoQ due to multiple increases in prices and USD/PKR stability. To highlight, net sales were up by 50% QoQ due to sequential surge in volumes.
The management of the company has requested the Govt to (1) eliminate FED on vehicles, (2) reduce custom duty on non-localized parts and (3) exempt additional customs duty on import of raw materials under SRO 655 and CKDS.
The management stated that it is difficult to forecast volumetric sales for the upcoming year due to being highly dependent on consumer behavior in a post Covid-19 world which is bogged by uncertainty. However, they are optimistic about the macro factors of the economy in regards to interest rate, oil prices, CAD and USD/PKR stability and believe that these factors could provide stimulus to auto sales but its extent is yet to be seen.
Imported vehicles have witnessed significant growth in demand as sales grew from an average of 700 units in 2QFY20 to an average of 1470 units in Jan/Feb’20 but fell to 840 units in Mar’20 due to the lockdown.
The management expects marketing expense to increase once the virus situation improves in Pakistan.
INDU witnessed minimal sales during April’20 due to partially operational dealership along with orders already in the company’s pipeline. However, no new vehicles were manufactured due to plant shutdown and all existing orders were supported by prevailing inventory.
The management views strong cash flow as imperative during these testing times and as such has announced a package worth billions of rupees to support its suppliers and dealers so as to deter any disruption to INDU’s supply chain in the future.
Talks regarding a new Auto Development Policy are expected to initiate in the second half of 2020, once the pandemic is over.
We have a mildly positive stance on the stock as the company’s strong balance sheet along with its brand image would support its earnings despite Covid-19 suppressing overall demand in the near future. Once the pandemic settles, improving macro conditions such as low interest rate, stable USD/PKR could provide stimulus to the demand for automobiles in Pakistan. However, the recovery would not be as significant as seen in previous downturn cycles, in our view.