Morning Call about – CPI preview Feb’13, – INDU’s Analyst briefing takeaways – Arif Habib Limited

Karachi, February 27, 2013 (PPI-OT): 1) Feb’13 CPI inflation to clock in at 7.92% Amongst a clutch of weary macro-economic numbers, Arif Habib Limited continues to expect inflation to remain within single-digit range.

According to Arif Habib Limited inflations for Feb’13 is expected to clock in at the level of 7.92% YoY in Feb’13. This soothes the upward trajectory of the overall consumer prices that took up the index by 8.07% YoY in Jan’13. However, MoM CPI in Feb’13 is projected to rise 0.17% after taking a high of 1.67% in the preceding month. With this, average inflation for 8MFY13 is estimated to come close to 8.25% YoY.

During Feb’13, it was observed that rising food prices in particular bolstered the headline inflation. Arif Habib Limited anticipates food inflation to rise by 7.9% in Feb’13, following an advance of 8.1% YoY in the previous month. Moreover, the figures released by the PBS of SPI show a decline of 0.04% (on average) during the month.

If Arif Habib Limited looks at the external account, the inflationary effects of richer import prices (having greater inflationary impact due to currency depreciation than any exports benefit), have been quite stable by far due to stability in commodity prices, thanks especially to the sustaining oil prices at USD 110/bbl, breather comes from there.

However, as the year unfolds, prices are expected to pick-up modestly dwelling in the range of 8-9%. The State Bank of Pakistan may need to commit to keeping accommodative monetary policy even after inflation picks up, to support growth.

2) INDU’s Analyst briefing update

Indus Motor Company Limited (INDU) held its analyst briefing yesterday to discuss its 1HFY13 result. The company posted PAT of PKR 978 mn (EPS: PKR 12.44) in 1HFY13, massively down 47% YoY, when compared with same period last year.

Analyst briefing takeaways:

INDU’s management announced that company’s new locally assembled SUV Toyota Fortuner is expected to be launched in the first week of March 2013. As per the management, the new SUV price would be around PKR 5.2 mn.

Management continued to pose influx of imported car as a threat. In this regard, as of Dec-12, approximately 80k units of cars were imported in 1HFY13. Given that, and along with the current inventory situation of used cars (approx 20-25k), the magnified impact of the ECC’s decision (reduction in the age limit to 3 years) would be evident in FY14.

Management has planned capital expenditure of ~PKR 6.0 bn in FY13- FY14 with the yearly ratio of 30%-70%, respectively. The planned capital expenditure is mainly on account of Toyota Corolla’s new model launch.

The company’s other income declined significantly by 48% YoY. This decline was mainly due to lower interest income on cash deposits, along with the lower advances from customers due to depressed sales by the company during 1HFY13.

Arif Habib Limited will update Arif Habib Limited models once the detailed financials are available. However, for now at current levels, the stock offers marginal upside 1% from Arif Habib Limited Jun-13 price target of PKR 296/share. Thus, Arif Habib Limited recommends ‘Hold’ on the scrip.

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