Update Pulse

June 13, 2011

Pakistan Research

Automotive Sector: May - Not a holy month

Synopsis
The Pakistan Automotive Manufacturers Association (PAMA) has released production and sales data for the month of May11. As per the data, sale volumes in May11 experienced a decline of 5% MoM to 13,126 units against 13,831 units in previous month. The reason behind this fall in sales seems to be on the back of an expectation for an announcement for the reduction in GST in the budget FY12 which motivated consumer for a deferred buying. However, during the 11MFY11, auto sale volumes rose by 12% units to 138,226 as against 123,891 units recorded in the same period of last year.
Company wise sales
Scrips PSMC INDU HCAR DFML Total Apr-11 7,510 4,681 1,640 13,831 May-11 7,977 4,205 944 13,126 %Chg 6% -10% -42% NA -5% 11MFY10 65,300 45,030 12,392 1,169 123,891 11MFY11 %Chg 77,180 46,145 14,698 203 138,226 18% 2% 19% -83% 12%

CULTUS with an increase of 9% (552 units) and 5% (1,321 units) respectively. However, ALTO remained an only product of the company which could not catch the attention of consumer hence its sales declined by 4% (1,056 units). INDU : On M-o-M basis, hot cake segment of the company, Corolla, showed a substantial decline of 19% to 3,331 units in May 11 (average 3,479 units per month in 11MFY11). On the other hand, in May11 sales volume of Cuore showed a substantial growth of 82% to 569 units versus 312 units in previous month. HCAR : On M-o-M basis, both segments of the company showed a lackluster performance as sales of the Civic decline by 41% to 362 units while sales of the City also to remained gloomy with 43% decline in May 11 as against 612units in the pervious month. Tractor: Tractors sale volumes witnessed a substantial increase of 15% MoM to 6,248 units in May 11. Millat and Al-Ghazi both showed sharp rise in sales of 18% and 9% MoM respectively.

HOLD
Market Snapshot Index KSE 30 11897.7 KSE 100 12377.77 KSE ALL 8605.57 Chg 1.91 47.63 29.38 % 0 .02 0.39 0.34

Market Share (11MFY11)

PSMC INDU HCAR DFML

11%

0% 56%

33%

Out look and recommendation

As per our analysis, 1% reduction in sales tax would benefit consumers by PKR14,000 to PKR15,000 for INDU and PKR7,000 to PKR11,000 for PSMC. On the other hand, we believe, rising steel and other commodity prices, higher inflation and expected Pak Rupee depreciation against Yen would lead assemblers to raise the prices and this would eventually mitigate the benefit of reduced GST. As far as, the performance of the sector as whole is concerned, we believe, as the economy seems to be gradually coming out of worst, thus, would have a positive impact on industry as a whole. Our target price for INDU and PSMC is PKR247 and PKR73 respectively. We suggest a HOLD stance on both scrips.
Monthly auto sales trend
17,500 14,000 10,500 7,000 3,500 May Aug Sep Feb Mar Jan Nov Dec Jun Apr Oct Jul FY09 FY10 FY11

Source: PAMA & Summit Capital Research

HCAR & INDU down PSMC up

On MoM basis during the month of May11 sales of HCAR declined substantially by 42% to 944 units against sales of 1,640 units in the previous month. Similarly, INDU sales went down by a sharp 10% MoM to 4,205 units against 4,681. PSMC stood alone as a gainer as its sales rose by 6% to 7,977 units as against sales of 7,510 units in the last month. As far as the market share, PSMC maintains its position as a market leader with 56% market share in 11MFY11 whereas HCAR has a lowest market share of 11% which has shown a modest improvement in comparison of same period last year when company had a market share of 10%. Moreover, DFML continued its suspended operations. PSMC : On MoM basis, Mehran and LIANA stood the star performer segments of the company as both of these segments posted a substantial growth of 25% (2,343units) and 22% (61 units) respectively, followed by SWIFT and

Source: PAMA, Summit Research

Muhammad Sarfraz Abbasi Sarfraz.abbasi@summitcapital.com.pk Phone: 021-35376125 B-209, Park Towers, Clifton, Karachi

Disclaimer: All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Summit Capital (Pvt.) Limited accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication. All information is provided without warranty and Summit Capital (Pvt.) Limited makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained.