Analyst Briefing: PSMC optimistic about demand outlook; expects cut in custom duties

May 08, 2021 (MLN): Pak Suzuki Motor Company Limited (PSMC) held its Analyst Briefing recently, to discuss the latest financial performance as well as future outlook of the company.

To recall, the company posted a profit after tax of Rs778million (EPS: Rs9.45) for 1QCY21 compared to a loss after tax of Rs941million (LPS: Rs11.44) in the corresponding period last year. The rebound in bottom-line was mainly driven by volumetric growth in sales, upsurge in other income and lower finance cost.

While commenting on the financial results, management highlighted that company’s topline witnessed a two-fold increase YoY on the back of higher volumetric sales of its vehicle line-up in 1QCY21 on the back of the low base effect of the Covid-19 situation and favorable consumer financing rates.

Despite higher volumetric sales of more than 28000 units, gross margins of the company remained under pressure that settled at 6.12% in 1QCY21. The management discussed that this 205bps QoQ decline in gross margins was primarily the result of higher freight charges and elevated steel prices.

The management also highlighted that company is highly skeptical regarding the issues which tend to spike the prices such as soaring raw material cost, freight charges and duties.

The key points of the briefing covered by Foundation Securities revealed that all segments of PSMC showcased YoY increase in 1QCY21 except the CBU segment. The 800cc, 1000cc, 1300cc and LCV segments increased by 163/45/3 & 105% YoY to 15,733/7,980/898 & 3,466 units, respectively. The CBU segment recorded a decline of 80% YoY to 24 units in 1QCY21.

Shedding light on the market share of PSMC, the management revealed that the company witnessed an increase in market share as it reached 51% in 1QCY21 compared to 44% in SPLY. On the other hand, both INDU and HCAR were unable to hold their market share from 1QCY20 and declined by 6ppt and 4ppt YoY respectively during the said period.

It was further apprised by the management that the significant contribution of auto financing cannot be ignored as vehicles price soar. In CY20, auto financing contributed 40% of the total sales of PSMC compared to 30-35% in CY19.

Underlining the importance of government policies on the auto industry, the management said that these policies are very crucial for all over the industry. Talking about new auto policy, the company expects a sharp reduction of Federal Excise Duty (FED) and Additional Custom Duty (ACD). This may lead to higher margins and improve the profitability outlook of the company.

Further, the company is more inclined towards hybrid vehicles as it believes that the adoption of electric vehicles may still take some time as they need large capital expenditure and infrastructure development.

In relation to the recently launched scheme “Roshan Apni Car”, the management is of the view that this scheme has the potential to boost the auto industry in the times to come.

Speaking of competition, the management believes that the present market situation is quite attractive for new companies. So far, the industry has welcomed new competitors which created a healthy competitive environment. Taking this opportunity, the management gave a hint that PSMC is also working to launch a new model given the competitive environment.

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