LAHORE: With FY11 coming to an end, auto sales posted a minor increase of 3.4 percent to 146,494 units versus sales of 141,646 units witnessed in FY10 according to the latest data released by Pakistan Automotive Manufacturers Association (PAMA). Interestingly, the volumetric sales are still down 18% as compared to their historic high of 177,750 units registered in FY08.
The recovery in sales primarily stems from improved rural economy which has benefited from firm farm commodity prices, while sales in the urban centers remain subdued as elevated interest rates has lowered the appetite for consumer financing.
In addition to high interest rates, supply side disruptions as an aftermath of Japanese earthquake and deferred purchases in Jun-11 also contributed to subdued sales growth.
Amongst the individual companies, volumetric sales for PSMC showed an improvement of 8 percent to 79,941 units compared to 73,993 units sold in FY11. On the contrary, Indus Motor witness a decline in its volumetric sales by 2 percent to 50,015 units.
In June alone, sales depicted a significant decline of 55 percent YoY and 43 percent MoM to 7,517 units (26-month low) on account of deferred purchase amid reduction in 1 percent GST (General Sales Tax) and removal of 2.5 percent SED (Special Excise Duty) announced for FY12 in the recent budget. The major dent in the sales were in Pak Suzuki down 68 percent YoY, followed by Indus (declined by 33 percent).
We believe June sales are not an actual depiction of the sector’s fundamental and they are expected to revert back to normality from July and likely to show an overall increase of 7 percent in FY12. Despite improved volumetric sales, we maintain Market-weight stance on the sector on account of strained margins and high regulatory risk. We maintain Hold stance on INDU and PSMC at current levels.