Automobile Sector - A withered past and a blurry future

October 23, 2019: The Automobile Sector of Pakistan still appears to be haunted by the horrors of local currency devaluation, higher Federal Excise Duty and ongoing economic slowdown.

While the Pakistani Rupee (PKR) may have shown stability in the past few months, this still does not negate the view of several market spectators, who are certain that the sector might once again report adverse results for the quarter ended September 2019.

The reason for this unrelenting downturn may be that the major players have still not put a halt on their price hiking regime, even though the PKR has stabilized by a considerable margin. Keeping this in view, various brokerage houses have put forward their assessment to explain why the sector is performing the way it is, and the driving forces behind its upsetting performance.  

According to a research report prepared by Foundation Securities, the earnings of automobile sector are likely to decline by a massive 82%, thanks to drop in volumetric sale, decline in non-core income and imposition of higher effective tax rate. Moreover, inflationary pressures have caused the import costs to shoot up, which in turn is expected to strain the profits of the sector.  

Another report by Intermarket Securities suggests that the recovery in earnings may take some time considering the current economic challenges of the country. There might be recovery in the next year, but that too very slow owing to the higher tax burden on the sector.

Amongst the major players within the sector, Pak Suzuki Motors is likely to post a Loss after Tax whereas Indus Motor Company and Honda Cars are expected to report a decline in their earnings.

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