Sales Steady But Upcoming Industry Plan In Focus
BMI View : In line with our view, Pakistani auto sales continue to build steady momentum in the past few months as both the passenger car segment and CV segment enjoy growth. We believe the upcoming industry plan from the government will be crucial in determining the direction of the sector for the remainder of FY2013/14 as well as the rest of our forecast period.
The positive momentum in Pakistani auto sales, a trend we initially highlighted in August 2013 (see 'Sales To Recover But Production Faces Challenges', August 29 2013), continues unabated towards the tail end of 2013. Vehicle sales in November 2013 rose 4.8% year-on-year (y-o-y), to 9,798 units. This increase marks the fifth consecutive month of auto sales registering a positive y-o-y increase.
|Pakistan - Domestic Auto Sales, Units (LHS); % Chg y-o-y (RHS)|
The gain in sales was led by all segments, with both the passenger car segment and the commercial vehicle (CV) segment enjoying growth. While vehicle sales have made a strong start in FY2013/14 (June-July), we caution that they will have to face a higher base in H2FY2013/14, which will slow down growth rates. Therefore, we are comfortable to maintain our full FY2013/14 sales growth forecast of 2.7% at present.
Manufacturers Reaping Gains
Additionally, margins of local assemblers have improved in the past few months. From October-December 2013, the Pakistani rupee has appreciated by about 9% against the Japanese yen. With domestic manufacturers importing most of their assembly parts and kits from Japan, this strength in their local currency improves their margins. Further bolstering their profits is the recent hike in prices by all three local carmakers, Pakistan Suzuki Motor Company, Indus Motor Company and Honda Atlas Cars.
Upcoming Industry Plan Will Chart Direction
We believe the upcoming Auto Industry Development Plan 2, which is set to be unveiled by the government on January 9 2014, will be crucial in determining the direction of the sector for the remainder of FY2013/14 as well as the rest of our forecast period. A reversal to the earlier decision by the government in December 2012 to reduce the maximum age limit for imported used cars from five years to three years could hurt domestic automakers' sales once again. However, attractive policies such as incentives would make us more bullish on the Pakistani auto sector and we will then look to upgrade our long-term sales and production forecasts.