July 14, 2021 (MLN): Pakistan’s automobile sector is continuously moving on to the upward trail of growth. The sector is one of the major drivers of the economic growth as its lows and highs have a substantial impact on the economic growth.
Thus, the government has marked this sector as a priority to accelerate the economy towards the target of 4.9% GDP growth by the end of FY22. Notable incentives have been extended in federal budget for FY22 to fuel the growth. Not to forget, the sector also relished by the Auto Development Policy that truly pushed the sector towards growth by tapping its competitive potential and the sector started observing notable numbers in the previous months.
However, from the growth perspective the sector has not utilized its full potential yet. To recall, the volume of passenger cars sale was nearly 216,786 and 207,630 in FY18 and FY19, respectively.
The sale of passenger cars during the month of June 2021 was recorded at 11,569 units against a total production of 18,154 units, which is around 11% lower as compared to the 12,934 units sold in May 2021. On monthly basis, the decline in sales is attributable to anticipation of decline in car prices and new auto policy.
On YoY basis, the sector continued to stage good statistics. During the month of June’21, 151,182 passenger cars were sold in FY21, 58% higher as compared to the sales in Jun’20. The increase is primarily due to the low base effect amid strict lockdown. Moreover, the substantial contribution of favorable macros such as policy rate and GDP growth can not be ignored.
The major industry players i.e, INDU, PSMC and HCAR underwent surge in volumes as INDU witnessed the highest volumetric yearly improvement in sales of 102% and sold 57,236 units in FY21. The hike in sales is primarily based on the launch of Yaris which sold 28,295 units in previous year and become the top seller of INDU. Riding the SUV wave, the Fortuner and Hilux volumetric sales also increased by 205/88% YoY.
The annual sales of HCAR during FY21 clocked in at 29,291 units, depicting an increase of 79% YoY as sales improved across the board and the Civic covered for declining City sales.
PSMC growth numbers also landed in the green zone with annual sales of 88,032 units, increased by 34% YoY but it reported the lowest growth of Big three, the same way it witnessed lower decline in sales in FY20. The Alto took lion’s share (43%) of PSMC sales at 37,720 units, up by 22% YoY, while the Wagon R posted the highest yearly increase in sales at 12,659 units, showing a surge of 81% YoY, a report by BMA Capital noted.
With regards to tractor industry, June witnessed sales of 5,000 units, staged a 20% increased on mom basis. Both MTL and AGTL witnessed a 20% rise in volumes to 3,500 and 1,500 units, respectively. This brought FY21 sales for MTL to 35,500, posted an upsurge of 70% yoy.
According to Abdul Ghani Mianoor, Investment Analyst at Intermarket Securities, PSMC sales are likely to pose a strong rebound in 2HCY21, following the recent reduction in car prices in July, potentially overshadowing the sales growth of other OEMs.
Moreover, it is expected that tractor sales to resume the uptrend in the coming months, as farmer income continues to expand ahead of the Rabi harvesting season and amid renewed government focus on the Agri-sector, he added.
As per projections made by BMA Capital, the current momentum, set in place by economic recovery, low financing rates, and new model launches is expected to continue on the back of FY22 budget incentives and a favorable auto policy expected next month.
However, caution is required due to increasing input prices of freight, containers, steel, plastics resin and semi-conductor chips, which may lead to higher prices and longer delivery times. The existing dynamics should change in FY22 as new entrants gear up production capacities, increasing competitive options in the market, decline in global shipping cost/delays, and normalization of input prices.
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