IMC gearing up for 40% decline in volumes in FY23

Karachi, September 29, 2022: With multiple price hikes amid escalating production costs, lower demand for auto financing with higher interest rates, measures taken by regulators and devastation caused by floods, Indus Motor Company is gearing up for a steep decline of close to 40% in volumes during FY23.

Currently, the company is operating at 40-45% of its capacity utilization as a result of plant closures amid limited import quota for CKDs.

However, the estimate excludes the impact of production issues caused as a result of LCs requirement by SBP for import of CKDs.

It is to be noted that the SBP has placed a quota on CKD imports at 50% of average imports over the last four months.

The quota limit was expected to be increased to 70% by Sep2022, however, currently it remains at the same level leading auto makers to opt for plant shutdowns.

IMC’s management was of the view that the situation remains unclear and expects it to remain unresolved in the near future where capacity utilization may remain in the range of 40%-60%.

It is pertinent to mention here that total industry sales (including non PAMA members) grew 51% during FY22 to 379k units with PSMC grabbing the largest chunk of sales (40%) followed by INDU (20%), HCAR (10%), Hyundai (4%) while other assemblers including KIA grabbed a market share of 26%.

4QFY22: EPS declines 90% QoQ

IMC held its analyst briefing on Tuesday to discuss its FY22 financial performance and outlook.

To recall, INDU posted an EPS of Rs6.48 for 4QFY22, down 90% QoQ largely due to decline in gross margins, higher S&D expenses and imposition of one-time super tax.

Net sales clocked in at Rs 72bn for 4QFY22, up 6% QoQ owing to impact of price hikes of up to 20% as volumes remained stable. Resultantly, despite 40% YoY higher PBT, cumulative EPS for FY22 clocked in at Rs201.24, up 23% YoY.

Margins struggle to remain afloat amid rising costs

INDU saw its gross margins wash away during 4QFY22 as the company faced the brunt of escalating production costs amid rising PKR devaluation (10% on average for 4QFY22) and higher freight rates.

Gross margin for the quarter shrank to 1% from 8% during the previous quarter. The management hinted that currently the company’s car prices are priced at a dollar rate of somewhere between US$200-210, giving rise to the possibility of further price hikes with US$ currently at much higher levels.

“With volumes fading away rapidly as reflected during 2MFY23 numbers (down 50% YoY), gross margins are likely to have a tough time recovering from current levels also reflected in the managements view pointing out that the possibility of losses in the upcoming quarters does not remain a far-fetched idea.

“Moreover, with the company’s advances drying up fast (down to Rs70bn as compared to Rs148bn as at Jun-2022), support from other income is likely to dip in the coming quarters as well,” said Wasil Zaman at JS Research.

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