AKD Quotidian about — Autos: May’13 sales review and Budget FY14 update

Karachi, June 14, 2013 (PPI-OT): PAMA earlier this week released auto sales numbers for IIMFYI3. According to the released data, volumes for auto sales (Cars + LCVs) for IIMFYI3 clocked in at 121.6k units, down by 24%YoY.

According to AKD Securities for May’13. sales were up by an impressive 1O.7%MoM to 13.3k units. HCAR reported the highest growth in sequential sales in May’13 with sales increasing by 34%MoM to 2.4k units, driven by a 82%MoM growth in sales of Civic.

Recall that HCAR has recently launched the new model of `Civic’. PSMC recorded 11%MoM increase in sales, however INDU was the contrarian decliner (-4.3%M0M). There was nothing positive for the auto sector in budget FY14, where besides increase in `Advance Tax’, the government has provided significant relaxation on imports of hybrid vehicles, which will increase competition for the OMEs.

11MYFY13 Auto sales volumes

(Units)              May-13     Apr-13    MoM     YoY      11MFY13   11MFYI2    YoY

Industry Performance
IndustrySales        13,302      12011    107%   -19.9%    121,637   159.983   -24%
Cars                  11786     10,384   13.5%   -21.1%    107,253   141.015   -24%
LCVs and Pickups       1516      1,627   -6.8%    -9.9%     14,384    18.968   -24%
Tractors              4,401      4,676   -5.9%   -36.3%     44.356    41.377     7%
Company Wise
FSMC                  6,971       6261   11.3%    -343%     65,660   100,805   -32%
INDU                  3,768       3936    -43%   -22.2%     33,533    48,907   -31%
HCAR                   2392       1780    344%   208.0%     16,928     9,901    91%

 Sourcø: PAMA and AKD Research

Auto Sector – Budget Implications: In federal budget 2013-14, status quo was maintained on duties of CBU and CKD units. Advance tax on below 850cc to 1300cc vehicles has been raised by PkR2500 to PkR13,125/unit while for the 1301cc to 2000cc+ category, advance tax increase ranges between PkR25k/unit to PkRlOOk/unit.

AKD Securities views this as Negative for INDU and Neutral to Negative for PSMC given its dominance in the `Econouriy’ (below 1300cc) category. Furthermore, duty relaxation on hybrid vehicles is also a negative for the OEM sector. Budgetary measures are largely negative, but potential upside could emanate from introduction of taxi scheme going forward (PSMC to benefit if scheme announced).

Hybrid Cars a new threat for local OEMs: To promote fuel efficiency, the government has relaxed the import of Hybrid Electric Vehicles (HUVs). Therefore the government has proposed to allow duty free import of HUVs upto 1200cc, provided a relief of 50% on the import of 1201cc to 1800cc HUVs and 25% relief on the HUVs of 1801cc to 2500cc engine capacity.

Prius is the most popular among the HUVs imported in the country while other brands are also available. With the relaxation measure, HUVs will become more affordable, making them more competitive with local OEM vehicles.

Outlook: Auto sector has gained 44%CYTD and has outperformed the broader market by 11% in the said period. One of the driving factors behind the auto sector rally was the sharp fall in JPY and steel prices, despite sluggish sales. The budget FY14 does not have any positives for the sector, where despite positive outlook for margins, sluggish demand prospects could result in the sector underperforming the broader market in the near term.