By: Adnan Haider
Sherman Securities (Pvt.) Ltd.
Sales of local manufactured cars & LCVs stood at 143k units during 2014 compared to 139k units in 2013, up 3%, according to the latest numbers released by Pakistan Automotive Manufacturers Association (PAMA).
Thus after posting a consistent decline in sales during last 2 years (2012-2013), car sales posted a recovery in 2014. However, the disappointing part is that the auto sales are almost the same as they were in 2010.
The reason behind subdued sales over the period was due to higher interest rates which forced consumers to buy on cash. Further rising car imports also dented local industry sales.
Company wise data shows that the leading car manufacturer, Pak Suzuki (PSMC) recorded sales of 78k units in 2014 versus 77k units in 2013, up 1%. Indus Motors (INDU) which recently launched its new corolla sold 42k units in 2014 versus 38k units in 2013, up 9%. On the other hand, sales of Honda Cars (HCAR) recorded 22k units in 2014 versus 23k units in 2013.
The new Corolla by Indus Motors which is gaining popularity was a success story in 2014 as it is the only vehicle which posted sales growth of 12% in 2014.
Alone in December, 2014 auto (Cars+LCVs) statistics shows that sales reached at 11k units as compared to 12k units in November 2014. This decline in sales is normally witnessed before year end as buyers prefer to buy new registered model and thus sales to recover sharply in January 2015. Company wise data in December 2014 shows that PSMC is the only bigger company which posted sales growth compared to sales figures in November 2014. That said, PSMC’s sales remained higher by 4%MoM to 6245 units as compared to last month sales of 5984 units while INDU, HCAR posted sales decline by 9%MoM and 46%MoM, respectively.
We believe auto sales to reach 200k units by the end of 2015 as Pak Suzuki will start delivering Bolan & Ravi by February under Apna Rozgar Scheme launched by Punjab government. Moreover, declining interest rate, lower oil prices and improvement in disposable income will somehow improve auto demand in Pakistan.
We have ‘Market-weight’ stance on Auto Assemblers and believe higher volume and better will lead to record earnings growth in 2015. Our preferred stock in auto sector is PSMC which is trading at 2015 PE of 7.3x.