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Karachi, April 14, 2014 (PPI-OT): Indus Motors (INDU) is scheduled to announce its financial results on Friday, Apr 18’14 where AKD Securities expects the company to post NPAT of PkR,2350mn (EPS: PkR29.90) in 9MFYI4 versus NPAT of PkR1,730m (EPS: PkR22.O1) in 9MFYI3, up by 36%YoY. In 3QFYI4 alone, AKD Securities expects INDLJ to post NPAT 0f PkR998mn (EPS: PkRI2.70), up by 33%Y0Y(111%QoQ.
In this regard, the company sold 11,548 units during 3QFYI4 (+71%QoQ) led by 76%QoQ higher sales of Corolla and 46%QoQ higher sales of Hilux, partly due to the New Year registrations effect. In addition to higher volumetric sales, INDUs profitability should also be buoyed by currency gains where the NCR gained 3.2%QoQ and 5.9%QoQ vs. the US$ and JPY, respectively.
This should lead 3QFYI4 gross margins to clock in close to 9% vs. GMs of 7.4% in the previous quarter particularly as the 2%-5% price cuts took place towards the end of Mar14. INDLJ has gained 42%CYTD to trade at a FYI4F PIE of 9.6x. While AKD Securities does not rule out profit taking in the near-term, AKD Securities believes improving dynamics for the Auto space, inline with a macroeconomic turnaround, makes INDU a potentially lucrative medium-term bet. Accordingly, AKD Securities will looks to revisit AKD Securities Limited’s investment case on INDIJ post upcoming results
9MFY14 Auto Volumes
According to latest auto sales data, overall industry sales (Cars + LCVs) grew by 4.0%YoY to 100,220 units. In 9MFYI4. This sales growth was led by HCAR (16792 units, +138%YoY), followed by INDU (26,727 unit +3.5%YoY) and PSMC (55,514 units, at par with last year). On a sequential basis, 3QFYI4 saw Industry sales of 38,968 units, up by 37%QoQ which was mainly led by I4CAR (6803 units, +85%QoQ) and INDU (11,548 units, +71%QoQ) while PSMC sold 20,022 units (+14%QoQ).
Total Mar14 sales of 12,269 units came off by 4%MoM where INDLJ was the main outperformer (4,051 units, +16%MoM). On the tractors front, 2,998 units were sold in Mar14 where MTL sold 2066 units (mkt share: 69%).
Mar’14 sales trend: In Mar14, overall industry sales declined by 4%MoM to 12,269 units, the sequential trend pointing to normalization post the New Year registrations effect. INDU was the star performer with a 16%MoM increase in sales mainly due to higher Corolla sales (3,399 units, +8.2%MoM) as the company lowered the prices of its variants by up to FkR75,000, following recent FkR strength and possibly in a bid to phase out inventory ahead of the launch of the new Corolla model. At the same time, sales of Hilux registered a strong uptick (+86%MoM).
On the flipside, HOAR sales dropped by 12%MoM to 1.971 units (740 units of Civic and 1231 units of City) while PSMC’s Mar’14 sales came off by 14%MoM to 5,992 units, with marked declines in Cultus (-24%MoM to 1,018 units) and Mehran (-23%MoM to 2.206 units).
Investment perspective: The AKD Autos Universe has gained 45%CYTD. outperforming the KSE-100 Index by 29% in the process. While the sharp recent price run-up may tempt profit taking in the near-term, AKD Securities notes that the ongoing macro turnaround bodes well for industry outlook particularly as auto financing is on the up.
Thai said, the new Auto policy remains a key question mark, especially directives on used car imports. In This regard, AKD Securities will looks to revisit AKD Securities Limited’s investment case for Autos post upcoming results.