Automobile Sector 9MFY10 Review

Sector witnessed the increase of 7.8%MoM
The Pakistan Automotive Manufacturers Associations (PAMA) has recently released the production and sales figures for the period of 9MFY10. The sector witnessed the increase of 7.8%MoM during the period to 12,618 units comparing to 11,703 units during last month. On the other hand, the 9MCY10 sales showed 34%YoY growth to 97,918 units comparing to 73,071 units during the same period last year.
Pak Suzuki Motor Company (PSMC) remained the market leaderThe PSMC remained the market leader by further improving its market share to 52% from 51% last month where INDU improved its market share from 35% to 38% during the period. On the other hand, the HCAR market share shrank to 9% from 12% last month while DFML market share remained lowest during the period.
Indus Motors (INDU) showed the largest growthThe sales of INDU showed the largest growth of 16.6% during the period to 4,837 units from 4,150 units during the earlier month followed by PSMC who increased its sales by 9.1% during the period to 6,512 units comparing to 5,970 units during the preceding month where Honda Atlas (HCAR) sales travelled in declining momentum by 18.3% to 1,151 units comparing to 1,409 units during the earlier month. The Dewan Farooq Motors Limited (DFML) remained the owner of lesser unit wise sales.
Corolla remained on top with 4,417 unitsThe sales of Liana witnessed the tremendous growth of 297% to make 119 units of sales during the period comparing to 30 units during the corresponding month while Swift showed 19.21% decrease in its sales during the period. The Corolla remained on top with the sales of 4,147 units during the period showing 19.13% surge during the period while HCAR’s Civic and City showed the 14.19% and 21.42% decline during the period.
Looking Forward
The automobile sales are improving coupled with ongoing economic recovery. I expect further enlargement if SBP eases monetary policy going forward. On the other hand, the cost of production are expected to remain in upward momentum with respect to the depreciating PKR-USD and PKR-JPY parity however, the margins are expected to be stabilized by upward revision of product pricing by the auto sector. I recommend 'hold' stance for INDU and PSMC scrips by considering their current trading at FY10E of 8.35x and 10.44x where our target price for FY10 is PKR 214 and PKR 107 per share respectively.