LAHORE - Pakistan auto sales went up by 1 percent YoY in Dec 2018, as against 17 percent YoY decline in Nov 2018. Moreover, sales are up 11 percent MoM. This is the first time in 12 years (since Dec 2005) that sales have increased in Dec on a MoM basis. This brings 1HFY19 sales number to 120,066 units, down by 3 percent YoY. This is the first time in 5 years that sales have declined during the first half of a fiscal year since 1HFY13.

Despite seemingly better numbers in Dec 2018, experts continue to expect significant slowdown in auto sales given 1) deteriorating economy, 2) law barring tax non-filers from purchasing cars and 3) multiple price hikes in the past 12 months. The MoM increase in sales is contrary to historical trend where sales fall in the month of Dec due to seasonal factors. This increase is primarily due to higher sales in PSMC (up 38 percent MoM).

Indus Motors (INDU) recorded robust YoY growth of 16 percent led by 84 percent YoY and 10 percent YoY increase in Hilux and Corolla sales, respectively. On the other hand, Fortuner sales declined by 33 percent YoY. On a monthly basis, volumetric sales are down 3 percent while sales are up 8 percent YoY for 1HFY19.

INDU has been able to maintain its volumetric growth despite the macroeconomic headwinds. This is attributable to the strong order book of the company that existed, where lead times for some variants of the company used to be as much as 5 months.

However, the lead times have now come down to a month or less for most variants as demand has slowed down and capacity constraints in the plant have been resolved. Moreover, it must be noted that the company continues to carry out capex in order to increase its production capacity to 75k units.

Honda (HCAR) sales fell by 26 percent YoY and 31 percent MoM while sales for 1HFY19 fell by 2 percent YoY. The YoY fall in sales in Dec 2018 was led by 50 percent YoY lower BR-V sales and 19 percent YoY lower sales of City and Civic units. HCAR had been showing a robust trend in monthly sales up un-till Oct 2018 (sales up 8 percent YoY for 4MFY18). However, with thinning of its order book, as depicted by decline in lead times (cars available in 15 days to a month), the company started showing slowdown in sales where in the past 2 months cumulatively, volumetric sales have fallen by 24 percent YoY.

Sales of BR-V have shown the most decline as the initial high growth phase of the new car came to an end. Although we expect monthly sales to recover slightly in January, we continue to expect falling volumes YoY. Moreover, it must be noted that the company’s cash and short term investments have fallen to Rs14.3b as of Sept 2018 compared to Rs31.6b in Mar 2018 due to decline in advances from customers, experts believe.