- Indus Motor Company (INDU) is scheduled to announce its FY14E result on August 27, 2014, where we expect INDU’s earnings to clock in 3% YoY lower at Rs41.56/share.
- In 4QFY14E, we expect INDU’s earnings to decline by 42% YoY and 2% QoQ to Rs12.03/share owing to lower unit sales amid phasing out of the previous model of Corolla.
- Alongside result, we expect INDU to announce a final cash dividend of Rs14/share, taking cumulative cash dividend to Rs20/share in FY14.
- We maintain our ‘Sell’ call on INDU, where we believe positives emanating from (1) earlier PKR appreciation vs. USD and JPY and (2) launch of the new model of Corolla, are largely priced-in.
FY14E earnings expected at Rs41.56/share
Indus Motor Company (INDU) is scheduled to announce its FY14E result on August 27, 2014. We expect INDU’s earnings to clock in 3% YoY at Rs41.56/share in FY14E on the back of 11% YoY lower revenues amid a 10% YoY decline in unit sales during FY14. That said favorable movement in Pak Rupee (PKR) is likely to result in higher gross margins of 9.8% in FY14E vis-à-vis 9.2% in FY13. In 4QFY14E, we expect INDU’s earnings to decline by 42% YoY to Rs12.03/share owing to 39% YoY lower unit sales amid phasing out of the previous model of Corolla. On a sequential basis, we expect expansion in gross margins is likely to limit earnings decline to 2% QoQ despite a 37% QoQ fall in unit sales. During the quarter, PKR appreciated by 5% QoQ vs. both USD & JPY, which is likely to take gross margins north to ~13.3% in 4QFY14E vs. 8.8% in 3QFY14. Alongside result, we expect INDU to announce a final cash dividend of Rs14/share, taking cumulative cash dividend to Rs20/share in FY14.
Positives largely priced-in; maintain ‘Sell’
We maintain our ‘Sell’ call on INDU (TP: Rs460), where we believe positives emanating from (1) earlier PKR appreciation vs. USD and JPY and (2) launch of the new model of Corolla are largely priced-in. Moreover, with the ongoing political deadlock in the country, (1) PKR has depreciated by ~5% to a 6-month low and (2) sales of the newly launched Corolla are likely to be adversely affected. INDU currently trades at an FY15F P/E of 10.5x vis-à-vis market’s FY15F P/E of 8.4x.
