Automobile sector exceeds expectations

The auto sector has outperformed the market, returning 11.5pc in 2017 to date vs. the 2.5pc return of the Benchmark KSE-100 Share Index.

The reasons behind the boost are expectations of new variants (mostly CBU’s) being met with sales growth due to the ‘new model effect’, stable industry sales growth (ex-Rozgar at 26pc year on year for the seventh month of fiscal year 2017 and macro indicators holding firm, particularly the rupee vs Japanese yen (3.4pc appreciation in rupee) situation being favourable for assemblers.

Analysts at AKD Securities said that the launch of new CKD variants over the past 20 years in the passenger and jeeps categories are now arriving at an average first-year sales figure of 2,426 and 584 for new cars and jeeps respectively, undergoing average annual growth of 76pc and 46pc respectively.

Despite drawbacks of this analysis, the persistence of sales growth for new passenger and jeeps models post-launch cannot be ruled out.

Future prospects remain exciting on the back of model launches, however from an earnings perspective they are CBUs, sales data for which are not disclosed by Pakistan Automobile Manufacturer’s Association.

Also, the products will be sold at higher prices pushed by higher customs duties and CBU led sales growth will raise foreign currency exposure as the vehicle’s entire cost is incurred in foreign currency.

However, perceived quality benefits of foreign assembled vehicles, lower expected delivery times (particularly in passenger cars) and after sales service provided by established OEMs are expected to attract demand.

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