Auto sales start to recover with 13% growth

[Naveed Yaseen]

KARACHI: Reduction in car prices by assemblers and recovering economic indicators have geared up the local auto sales, which registered an increase of 13 percent during July to September of the current fiscal, data released by the Pakistan Automotive Manufacturers Association (PAMA) said.

According to the association data, QoQ (quarter-on-quarter) auto sales rose by 20 percent in first quarter of current financial year led by 56 percent growth in PSMC sales.

A significant increase came from the car sales segment with its sales improved by 22 percent YoY to 26,812 units in 1QFY10. INDU’s Corolla, Honda’s Civic and Suzuki’s Liana in higher segment recorded growth of 366 percent, 14 percent and 37 percent YoY respectively, while major performers in lower segment were DFML’s Santro and Suzuki’s Alto with their sales up by 34 percent and 4 percent YoY, respectively.

Atif Zafar, sector analyst at JS Research attributed reason for this encouraging situation Indus Motor’s abnormal growth of 108 percent amid production phase out of the previous model of Corolla. HCAR sales depicted a rise of 1 percent YoY (year-on-year); however PSMC and DFML sales fell by 8 percent and 27 percent, respectively.

Resultantly, INDU’s market share rose by 1,543bps (basis points) to 34 percent from last year while PSMC and HCAR market share fell to 53 percent and 11 percent respectively. However, INDU sales witnessed a decline of 8 percent QoQ mainly due to seasonality.

On MoM (month-on-month) basis after posting 6 consecutive growths, auto (Cars + LCVs) sales came out weak in September 2009 as it fell 10 percent MoM with car sales down 4 percent MoM amid weak consumer buying in the Holy month of Ramadan, Atif said. He said that with the exception of Honda Atlas (HCAR), all other assemblers saw their sales decline during the month.

INDU was amongst the major losers as its sales declined by 15 percent largely due to decline in Corolla sales (86 percent share in INDU sales in 1QFY10 is Corolla) which came in at 2,655 units as compared to 3,172 units in August 2009, down 16 percent. Pak Suzuki followed suit with sales down 8 percent MoM, however, HCAR sales were up 2 percent MoM mainly due to a very low base. “Strong agriculture income and low base effect has resulted into 6 consecutive higher month-on-month auto sales”, he said. However, he added that weak September sales were due to slower than expected recovery in demand as evident from September 2009 trade numbers (export down 14 percent, imports down 36 percent).

He further said that auto sales are likely to remain depressed in the near term. As a result, FY10 YoY growth is expected to arrive at 12 percent, compared to 13 percent YoY growth realized in 1QFY10.

Moreover, sharp appreciation of yen against rupee (9 percent since the start of FY10) is a major concern for car assemblers. Cost pressure is also likely to aggravate due to weak dollar and in turn higher steel prices, analyst said. High inflation (+10.67 percent YoY) and the slowdown in auto financing continues to have a breaking effect on auto sales, Abdul Azeem at Invest Capital said. Furthermore, auto sector profitability is expected to come under further strain through the rising Yen and USD, which increased by 29 percent and 11 percent YoY respectively against national rupee (on average basis during Jul-Sep 09 YoY).

Auto demand from the government institutions and corporate sector would support the auto sales going forward, he said. However, lower base-effect would also persist during rest of FY10, therefore a 25 percent YoY growth in car sales to 104,00 units in FY10 is expected.

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