Auto sales off to a weak start

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  • Car SectorAutos sales in July 2014 clocked in at just 6,948 units, declining by 34% YoY and 42% MoM.
  • We believe the below par beginning to FY15 is largely owing to (1) limited availability of the new model of Corolla, (2) incidence of Ramadan and (3) pre buying in June ahead of applicability of higher taxation from July 1, 2014.
  • Amongst the auto assemblers, Indus Motor (INDU) witnessed the sharpest decline of 62% YoY, followed by Pak Suzuki’s (PSMC) fall of 24% YoY and Honda Car’s (HCAR) decline of 23% YoY.
  • However, given (1) Punjab government’s Yellow cab scheme and (2) the launch of eleventh generation of Corolla, we expect auto sales to rise by 46% YoY in FY15 (10% YoY excluding Yellow cab scheme).
  • Our preferred play in the sector remains PSMC with a Target Price of Rs310.

 

Auto sales off to a weak start in FY15
Auto sales in July 2014 clocked in at just 6,948 units, declining by 34% YoY and 42% MoM. We believe the below par beginning to FY15 is largely owing to (1) limited availability of the new model of Corolla, (2) incidence of Ramadan and (3) pre-buying in June ahead of applicability of higher taxation from July 1, 2014. Amongst the auto assemblers, Indus Motor (INDU) witnessed the sharpest decline of 62% YoY, followed by Pak Suzuki’s (PSMC) fall of 24% YoY and Honda Car’s (HCAR) decline of 23% YoY. On a MoM basis, PSMC and HCAR sales dropped by 44% MoM each while INDU sales declined by 26% MoM. We expect auto sales to pick up from August onwards. Hence, we expect sales to rise by 46% YoY in FY15 on the back of (1) Punjab government’s Yellow cab scheme and (2) launch of eleventh generation of Corolla. Excluding the Yellow cab scheme, we expect industry sales to augment by 10% YoY in FY15.

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PSMC remains our preferred play
Our preferred play in the sector remains PSMC, with a Target Price of Rs310. Recall that PSMC has recently entered into an agreement with Bank of Punjab for sale of 50k units of Suzuki Ravi and Suzuki Bolan under the Punjab Government’s concessional scheme. As a result, we expect PSMC to register an earnings growth of 36% YoY in 2015F. PSMC trades at an 2015F P/E of 5.2x vs. market’s 2015F P/E of 8.1x.

  

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