Low steel price, weakening yen to lift auto makers' profit
06 February, 2013
LAHORE: Softening Japanese yen as well as steel prices along with increasing volumes, after limitation on used cars import by the federal government, will lift profitability of auto makers in 2013.
LAHORE: Softening Japanese yen as well as steel prices along with increasing volumes, after limitation on used cars import by the federal government, will lift profitability of auto makers in 2013. Although the inability of PSMC to fully pass on cost effects of EURO-II compliance coupled with end up of high margin CNG cars turned the company into losses in 3Q2012, it is expected that margins of the company will turn positive after price increase and softening cost pressures, auto industry experts revealed. “First half of FY13 was bad for Pakistan local automobile industry as ban on CNG kits, termination of non EURO- II compliant cars and massive flooding of used imported cars in the country significantly dented the sales.
However, with the import restriction going into effect, experts from Topline Securities foresee growth in local car sales in coming months, with the notable recovery in 4QFY13.During January, they expect locally made car sales will rise by 30-35 per cent as compared to 8,448 units in Dec 2012. Moreover, deteriorating Japanese yen is expected to bode well to the profitability of car makers.According to statistics, during 1HFY13, locally manufactured car sales declined to 57,540 units as against 81,944 units in 1HFY12. It is blamed ban on CNG kits, termination of non EURO-II compliant ‘Coure' and ‘Alto', absence of taxi scheme and lenient import policy for low volumes. On the contrary, country has imported about 40-45k used CBUs in this fiscal year as against 30,832 in 8MFY12.
Tremendous surge in volume is also attributable to last minute orders prior to restriction on imports going into effect. To recall, government decided to restrict age limits of imported used cars from 5 to 3 years in Nov 2012 which goes into effect from December 15, 2012. However, this time importers had to seal the deal at high exchange rates, affecting their competitiveness to local cars. During Nov 2012, Japanese Yen was trading around Rs1.17 as compared to Rs1.08 currently.Given the declining imported car inventory, costly imports and cyclical phenomenon of better sales in 2H of fiscal year, it is expected strong recovery in car sales as compared to 1HFY13.
Overall, it is expected that INDU sales will stay in the tune of 24,000 units in 2HFY13 as compared to 14,699 units in 1HFY13, while PSMC sales for 2HFY13 are likely to be around 40,000 units as against 34,324 units in 1HFY13. For Jan'13, industry experts are expecting 30-35 per cent rise in car sales to 10-10.5k units as compared to 8,448 units in Dec 2012 because of new year-new model phenomenon and costly imported CBUs. Individually, for INDU, they expect 80-90 per cent volumetric growth in Jan 2013 as compared to 1,571 units in Dec 2012. For PSMC, they expect volumes will grow by 15-20 per cent as against 5,987 units in Dec 2012. Anticipation of price increases also contributed to volumetric growth for PSMC, they added.