LAHORE: The country’s auto industry sales are likely to grow 60pc in the current fiscal year (FY2020-21), with total sales expected to clock in at 201,000 units, including those of new entrants Lucky Motor Corporation (formerly KIA Lucky Motors), Hyundai Nishat and used imported cars.
“After taking into account higher-than-expected unit sales in the first four months (July-Oct) of FY21 and an upward revision in margin assumptions, we are revising our earnings forecasts of Pakistan automobiles universe for the next two years by up to 53pc,” said Syed Fawad Basir, senior research analyst at Topline Securities Limited. “We are raising our earlier FY21 and FY22 auto car and light commercial vehicle sales assumptions by 19pc (to 201,000 units) and 5pc (to 228,000 units), respectively.”
The research analyst cited ‘faster than expected economic recovery’ and ‘low interest rates’ as two driving factors behind the increase in estimates.
As per the State Bank of Pakistan, automobile loans have increased from Rs251 billion in March 2020 to Rs270 billion in October, depicting an increase of 8pc.
“However, sales are still likely to be 40pc lower than the highest level touched by Pakistan in FY18, when auto sales clocked in at 329,000 units,” Basir said.
Basir sees around 4pc-15pc growth in Indus Motor Company Limited (INDU) sales during FY21-FY22 primarily due to the successful launch of Toyota Yaris, which is a 1300cc-1500cc sedan pact with features not offered by competitors at the moment.
“The timing [of launch] could not have been better, as Yaris is competing with an ageing Honda City model. This is further evident from stellar sales numbers for Oct 2020 when Yaris outsold City and Civic combined,” he added.
Basir said after the company entered double shift production in October this year, lead times are expected to be reduced in the coming months from the current waiting period of up to four months. In addition, a facelift of Toyota Corolla variant is expected in January 2021, along with a price increase of Rs50,000, which is expected to improve margins.
The analyst expects an increase of 3pc-53pc in the earnings of Honda Atlas Cars (Pakistan) Limited (HCAR) over the next two years, mainly on the back of higher than expected 1HFY21 result, coupled with an upward revision in the overall industry estimates.
There also remains a strong possibility that the new model of Honda City would be introduced in 2021, which would lead to a surge in sales volume, he added.
According to the Topline analyst, Pak Suzuki Motor Company Limited (PSMC) earnings would also improve in the near future, but at a much slower pace, since the company introduced new models at a time of economic crisis, which weighed on its costs.
He said although supply chain issues continue to plague the industry, they are most evident in the case of PSMC.
“The void left after the discontinuation of Mehran is yet to be filled by newer models, mainly Alto and Cultus. After the initial euphoria, both models have failed to match Mehran levels.”
Meanwhile, the earnings of Millat Tractors Limited (MTL) are estimated to rise by 4pc-6pc over the next two years.
“Strong margins and volumetric recovery thus far on the back of agricultural demand have been the precursors for the upward revision,” Basir said. “The company has also benefited from an improved working capital situation; with a decline in interest rates, finance costs has come down significantly.”
In addition, the Federal Bureau of Revenue (FBR) on Monday issued a SRO, allowing legitimate farmers and growers to get sales tax adjusted as subsidy. This is also expected to keep sales volume upbeat.