Locally manufactured car sales down 3% in first half 2018-19

KARACHI: Country’s locally manufactured car sales are up by 1 per cent YoY in December 2018, as against 17 per cent YoY decline in Nov 2018. Moreover, sales are up 11 per cent MoM.

This is the first time in 12 years (since Dec 2005) that sales have increased in December on a MoM basis. This brings first half 2018-19 sales number to 120,066 units, down by 3 per cent YoY. This is the first time in 5 years that sales have declined during the first half of a fiscal year since first half 2012-13.

Despite seemingly better numbers in Dec 2018, the analyst continue to expect significant slowdown in auto sales given because of deteriorating economy, law barring tax non-filers from purchasing cars and  multiple price hikes in the past 12 months.

The MoM increase in sales is contrary to historical trend where sales fall in the month of December due to seasonal factors. This increase is primarily due to higher sales in PSMC (up 38 per cent MoM).

Indus Motors (INDU) recorded robust YoY growth of 16 per cent led by 84 per cent YoY and 10 per cent YoY increase in Hilux and Corolla sales, respectively. On the other hand, Fortuner sales declined by 33 per cent YoY. On a monthly basis, volumetric sales are down 3 per cent while sales are up 8 per cent YoY for first half 2018-19.

INDU has been able to maintain its volumetric growth despite the macroeconomic headwinds. This is attributable to the strong order book of the company that existed, where lead times for some variants of the company used to be as much as 5 months.

However, the lead times have now come down to a month or less for most variants as demand has slowed down and capacity constraints in the plant have been resolved. Moreover, it must be noted that the company continues to carry out capex in order to increase its production capacity to 75,000 units. Further, the analyst believes that rising interest rates will benefit other income of the company where INDU has a massive Rs 29 billion in net cash and short term investments (net of advances from customers).

Honda (HCAR) sales fell by 26 per cent YoY and 31 per cent MoM while sales for first half2018-19 fell by 2 per cent YoY. The YoY fall in sales in Dec 2018 was led by 50 per cent YoY lower BR-V sales and 19 per cent YoY lower sales of City and Civic units. HCAR had been showing a robust trend in monthly sales up un-till Oct 2018 (sales up 8 per cent YoY for 4MFY18).

However, with thinning of its order book, as depicted by decline in lead times (cars available in 15 days to a month), the company started showing slowdown in sales where in the past 2 months cumulatively, volumetric sales have fallen by 24 per cent YoY.

Sales of BR-V have shown the most decline as the initial high growth phase of the new car came to an end. Although we expect monthly sales to recover slightly in January, we continue to expect falling volumes YoY. Moreover, it must be noted that the company’s cash and short term investments have fallen to Rs 14.3 billion as of September 2018 compared to Rs 31.6 billion in March 2018 due to decline in advances from customers, the analyst believed.

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