CY10/CY11- Rough Road to Recovery

Dec 2010 auto sales down 23% MoM & up 7% YoY: Seasonal trend pushed overall industry unit sales down by 23% MoM. YoY industry sales were 7% higher due to low base effect as well as stronger demand for LCVs (rose 13% YoY).

CY10 in review: CY10 industry sales increased 26% YoY, thanks to a low base from CY09, and a broad-based recovery in all segments. Improved demand helped PSMC sales rebound by 41% YoY. Moreover, higher rural incomes helped support demand for Corolla and enabled INDU to register all time high sales of 52,329 units in CY10 (100% utilization level).

PSMC dominates in CY10: PSMC led overall market with 54% share. INDU on the other hand, with its flagship Corolla brand, remained second to PSMC with 36% share.

CY11 – Industry to grapple with tough macroeconomic situation: Given high interest rate environment will likely persist in FY11/12, there is little hope for recovery in auto financing. This dampens prospects for improved performance by PSMC. However, INDU may be able to cope given strong demand for its Corolla brand from rural areas. We maintain our ‘HOLD’ stance on PSMC, with June 2011 PT of PKR77/share (CY10E EPS at PKR5.91).

Dec- 10 auto sales down 23% MoM & up 7% YoY

Overall industry unit sales declined by 23% MoM, with 1300-1600cc segment showing the steepest fall (-44% MoM). This decline is seasonal and can be attributed to ‘New Year Effect’ and consumer preference for January registered cars. However, YoY industry sales were 7% higher due to low base effect as well as stronger demand for LCVs (rose 13% YoY).

CY10 in review

CY10 industry sales were 26% higher than CY09, thanks to a low base from CY09, and a broad- based recovery in all segments- 800cc in particular where sales recovered by 46% YoY. PSMC was the major beneficiary of this recovery in demand (sales rebounded by 41% YoY) given it is the dominant car maker in 800-1000cc segments. Moreover, helped by higher cotton prices and rural incomes, demand for Corolla remained resilient throughout the year and enabled INDU to register all time high sales of 52,329 units in CY10 (100% utilization level).

PSMC dominates in CY10

With near monopoly in the lower end market for 800-1000cc cars, PSMC led overall market with 54% share. INDU on the other hand, with its flagship Corolla brand, managed to break into the market leader rank once (Jul 2010), but remained second to PSMC with 36% share.

CY11 – Industry to grapple with tough macroeconomic situation

With deteriorating fiscal situation, SBP will quite likely maintain a tight monetary stance through CY11, and there is little hope for early recovery in auto financing. This coupled with rising cost pressures, uncertain regulatory environment (import policy and age limit for old cars) dampens prospects for improvement in performance by PSMC. However, INDU may still be able to cope given strong demand for its Corolla brand from rural areas, as well as cost reduction from its recently installed press shop. We maintain our ‘HOLD’ stance on PSMC, with June 2011 PT of PKR77/share (CY10E EPS at PKR5.91).

Economic & Political News

Pakistan achieves highest-ever monthly exports in December

Pakistan recorded highest-ever monthly exports of USD2.1bn during the month of December this fiscal year. This was 35.9% higher than the level of during Dec-09. Imports during Dec-10 were valued at USD3.8bn registering a growth of 27% over last year. Cumulative value of exports for the period 1HFY11 was USD10.1bn as against USD9.1bn, registering a growth of 21% over the same period last year. While, cumulative value of imports for the period 1HFY10 was USD19.1bn as against USD15.9bn registering a growth of 19.6%, over the same period last year.

Federal Budget FY12 likely on May 28

MoF has plans to present the next fiscal year’s Federal Budget FY12 in the parliament on May 28, 2011. Special session of the federal cabinet meeting will be presided over by the Prime Minister Yousaf Raza Gilani to consider and approve the budget on May 28 and later in the evening Federal Minister for Finance Dr Hafeez Shaikh would present the budget in both houses – National Assembly as well the Senate of Pakistan.
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