January 03, 2020 (PPI-OT)

Auto sales to decline 42% YoY in December

Auto sales for Dec-2019 are expected to decline by 42% YoY to ~11,300 units, which would be the lowest monthly sales for a December month since 2014, i.e. roughly at the start of the previous growth cycle.

Indus Motors (INDU) and Honda Atlas (HCAR) are expected to face yet another month of halving of volumes, with declines of 57% YOY and 58% YoY, respectively.

Yet again, Alto is expected to be Pak Suzuki (PSMC)'s saving grace, limiting the overall reduction in unit sales to 32% YoY for the automaker.

Moreover, Millat Tractors (MTL) could see a 3x increase in sales, which is likely due to low base effect, considering that their plant remained inoperative last year during this time.

We maintain our Underweight stance on autos and reiterate that volumes and earnings will remain under pressure in the current scenario, whereas any small reductions in car financing rates will most likely not have a material impact on volumes.

Auto sales for Dec-2019 are expected to decline by 42% YoY to ~11,300 units, which would be the lowest monthly sales for a December month since 2014, i.e. roughly at the start of the previous growth cycle. Volumes are expected to remain downbeat in December in the aftermath of high prices and interest rates. Indus Motors (INDU) and Honda Atlas (HCAR) are expected to face yet another month of halving of volumes, with declines of 57% YOY and 58% YoY, respectively. Yet again, Alto is expected to be Pak Suzuki (PSMC)'s saving grace, limiting the overall reduction in unit sales to 32% YoY for the automaker. Moreover, Millat Tractors (MTL) could see a 3x increase in sales, which is likely due to low base effect, considering that their plant remained inoperative last year during this time.

Recent price increases by OEMs seem slightly surprising to say the least, given the state of volumes at present. At least in PSMC's case, margins had fallen to unsustainable levels (the company has incurred four consecutive quarterly losses) and a price increase is not unjustifiable. However, for others with sufficiently higher margins (and claims of keeping prices unchanged in current scenario), it is somewhat unfathomable to see a price increase.

The only possible logic could be higher expected demand in January (New Year factor) and a view to pass on cost impacts all in one go with a period of stable prices later (assuming a stagnant Rupee), which is what happened last time too following the 2008-09 crisis. We maintain our Underweight stance on autos and reiterate that volumes and earnings will remain under pressure in the current scenario, whereas any small reductions in car financing rates will most likely not have a material impact on volumes.

© Pakistan Press International, source Asianet-Pakistan