Industry

Automobile industry remains in depression

Karachi, August 27, 2019: The local automobile industry remains in depression as high interest rate, rising inflation, slow-down in economic activities and glitches on purchasing cars by non-filer affecting the vehicle’s demand in the country.

According to a report prepared by Spectrum Securities, therefore, the profitability of auto sector went into recession and posted a massive decline of 43 percent YoY during 4QFY19. We are reviewing financial results of top three car assemblers (PSMC, INDU, and HCAR).

As per company wise performance, PSMC was intensely affected by PKR devaluation and increase in cost of other utilities as the company posted loss of PKR544 million against PAT of PKR394 million in SPLY.

Similarly, HCAR profitability dipped by 77 percent YoY displayed profit after tax of PKR242 million and INDU registered a decline of 16 percent YoY in net profit comparatively less effected among peers.

Industry margins diminish during 4QFY19. The demand constraints restricted industry to fully pass on PKR devaluation impact leading to drop in industry gross margin by 495bps to 6.7 percent in 4QFY19, although the assemblers increased unit prices during the said period. The total revenue of auto assemblers soured by 6 percent YoY to PKR88,935 million in 4QFY19.

Similarly, operating margins declined by 586bps while distribution and admin cost increased by 31 percent YoY and 4 percent YoY respectively. The other income of the said companies posted a decline of 27 percent to PKR1.4 billion. Subsequently, the net profit of the sector reduced by 43 percent YoY to PKR3155 million in 4QFY19.

According to analysts The automobile demand would remain subdued during the year due to the fragile economy along with rising inflation, higher interest rates, and PKR devaluation to further hurt demand.

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