AKD Securities Limited Equity Research – Off the Analyst’s Desk

Karachi, February 25, 2016 (PPI-OT): INDU: 1HFY16 Result Review

Posting a NPAT of PkR5.89bn (EPS:PkR75.00), INDU benefitted from: 1) favourable currency swings (1HFY16 average JpY/US$ depreciation of 11.5%YoY) and weakness in input prices during the period (China steel sheet price average down 34.8%YoY), 2) maintenance of superior pricing power amidst escalated offtake (corolla sales for the period up 33.5%YoY), raising the topline by 31%YoY, 3) increase in admin expense (higher by 15%YoY) and other expenses (with WPPF and WWF expense an increase of 83%YoY) countered by rise in other income (up 19%YoY) and 3) lower effective tax rate (30.8% in 1HFY16 vs. 31.4% in 1HFY15).

2QFY16 NPAT of PkR2.96bn (EPS: PkR37.67) grew 47%YoY/1%QoQ, on the back of improved offtake driving the topline (which rose 21%YoY/7%QoQ) despite the quarter being a relatively slow period for sales. Margin improvement remained prominent, with GM/OM/NM of 16.1%/14.5%/11.2% vs. 13.5%/11.6%/9.2% during the same period last year.

Signalling strong core profitability on the back of favourable external factors (JpY depreciation, PkR/US$ holding steady, steel prices falling), margins firming up and the Corolla variant continuing to benefit from the “feel good” factor, INDU’s margins are poised to stabilize in the near term. JpY appreciation (6.1% higher CYTD against the US$), steel prices stabilizing and fading out of Corolla demand are expected to slow down earnings. Recent bout of selling remains overplayed, in AKD Securities Limited’s view, where AKD Securities Limited’s DCF based, June’16 TP of PkR1,305 implies a BUY stance.