By: Foundation Securities Limited
The automobile sector continues to deliver robust growth as total automobile sales in 5MFY16 rose by 40% YoY. Where volumetric growth remained primarily the result of new Corolla model and Rozgar Scheme, contribution also came from the smaller segments of 800-1000cc, up 36%/38% YoY in 5MFY16. Delayed subsidy disbursement continued to adversely affect tractor volumes that registered a decline of 38% YoY in 5MFY16.
While we see positive implications of overall economic growth and increased consumer financing to flow to the automobile sector over near future, we cite weakening Rs-US$ parity, along with concessions to new entrants to normalize profitability. Based on the said, we maintain our Neutral stance on the sector.
Smaller segment making meaningful contribution to growth: While growth stemming from the new Corolla model and Rozgar scheme remained intact, smaller segments of 800-1000cc also made healthy contributions to increased volumes with Mehran and Cultus recording an increase of 43%/16%YoY in 5MFY16. Within the bigger segment of 1300cc, growth was led by the New Corolla model, up 39% YoY in 5MFY16, while the LCVs segment registered growth of 172% YoY in 5MFY16. With ~13,900 units of Ravi and Bolan left to be released under the scheme, we believe the coming months would witness trimmed contribution to growth from the LCV segment.