Indus Motor Company

July 14, 2025 (MLN): The sharp decline in Indus Motor’s share price, in between November 2024 and February 2025, was nothing short of chaos for investors. The price plummeted from its peak of Rs.2,283 to Rs.1,687 per share, marked by intermittent volatility. The turmoil echoed the words of Sun Tzu, the ancient Chinese general and strategist, who wrote in The Art of War:

“In the midst of chaos, there is also opportunity.”

But few had the conviction to pick the stock, even with the understanding that panic often leads to irrational sell-offs and undervalued stocks,

So, was the panic selling an opportunity to invest in a temporarily out-of-favor stock, but rich in strong long-term value?

Only then when there is no adverse change in financials and fundamental of the company. Without this, labelling chaos in share price as an investment opportunity is akin to finding a needle in a haystack. While valuation methodologies offer means to identify investment opportunity by uncovering underlying value in a changed situation, however, not without extensive financial modelling and rigorous analysis.

Thanks to Benjamin Graham and David Dodd, best known for laying the foundation of value investing through their seminal work “Security Analysis” (1934), presented a dependable alternative, no less effective than modern financial models for valuing a stock, by suggesting that:

"It is quite possible to decide by inspection that the value of a given security is indeterminate, and to go beyond valuation into prophecy."

In search of the underlying “Prophecy”, the marked shift in consumer preference from sedans to SUVs emerged as the plausible driver behind the panic sell-off in shares.

A news published in Business Recorder in January 2025 reported extra-ordinary growth in SUVs sales, including of CUVs sales.

This trend was further reinforced by car registration data, which showed that SUVs—including CUVs—accounted for approximately 68% of new vehicle registrations, compared to just 32% for sedans and hatchbacks.

Perhaps, the underlying fear that if SUV sales continued to grow at their current pace, it could eventually undermine Indus Motor’s industry leadership, leading to a potential loss of market share and, over time, an erosion of its earnings and share value, prompted panicked investors to offload shares at throwaway prices.

So, should the shift in consumer preference be viewed as a doomsday prophecy for sedans— and, by extension, a threat to Indus Motor’s long-term viability as a sustainable player in the market?

A deeper delve into the data to ascertain whether the shift in consumer preference from sedans to SUVs had evolved from a fleeting fad into a sustained trend affirmed those concerns.

What began around 2018 has now solidified into an established trend, driven by both individual aspirations and evolving corporate mobility needs.

Considering that subjective assessments provide a weak foundation for drawing substantive conclusions; AI was asked to forecast SUVs and Sedans sales over the next 10 years by using historical average growth in sales of SUVs and Sedan with an added presumption of gradual tapering over time.

Here is the projected sales graph for Sedans and SUVs from 2025 to 2035, based on assumed historical growth rates.

What does Graph mean to Investors?

The trend suggests that SUV sales are likely to surpass Sedans before 2030, reflecting the ongoing shift in consumer preferences.

Then, where lies the Investment Opportunity?

As per the projected sales graph, Sedans are expected to dominate the auto sales till 2028. This may be seen as a “Prophecy” of no immediate demise of Indus Motors Company. A closer look at year’s sales and gross margins corroborates the same. According to the recent report released by PAMA, Indus recorded a 67% growth in sales during the first 9m2025 with surge in Profit After Tax by 75%, i.e. to Rs.16.55 n from Rs.9.41 bn for the same period last year. Moreover, earnings are expected to remain strong for the full year with no indication of a cut in dividend payout.

Therefore, valuation gap in share price of Indus, driven by a divergence between underlying fundamentals and prevailing market sentiment, presents a compelling opportunity for value-oriented investors.

The Risk to the Inference

SUVs sales is projected to surpass Sedan sales by 2028. However, it largely hinges on Indus Motor Company’s inability to align its vision and strategy with evolving consumer preferences. Encouragingly, Indus has already demonstrated a degree of agility in this respect by expanding its presence in the SUVs segment through offerings Hilux, Fortuner, and, more recently, the Corolla Cross.

Conclusion

The sharp decline in Indus Motor’s share price may have rattled market sentiment, but a deeper analysis reveals a different story, one of resilience, strategic agility, and potential mispricing.

While shifting market dynamics, particularly the rise of SUVs, present long-term challenges, Indus has demonstrated a proactive approach to adapting its business model.

For discerning investors guided by fundamentals rather than fear, this may well be one of those rare windows where opportunity hides behind volatility, just as Sun Tzu foretold:

“In the midst of chaos, there is also opportunity.”

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