Indus Motor Company Limited (INDU), a key player in Pakistan’s automotive industry, recently hosted a corporate briefing on September 11, 2024, to review its 1HFY24 financial performance and share its outlook for the future. Below are the key takeaways from the session:
1. Earnings Performance
In 4QFY24, INDU reported a profit after tax (PAT) of PKR 5.7 billion, translating to earnings per share (EPS) of PKR 72.09. This marks a robust 48% year-over-year (YoY) increase compared to 4QFY23’s EPS of PKR 48.61. For the full fiscal year, the company’s PAT reached PKR 15.1 billion (EPS: PKR 191.76), reflecting a remarkable 56% YoY growth compared to FY23’s EPS of PKR 122.96. Alongside this, the company announced a final cash dividend of PKR 43.0 per share, bringing the total FY24 payout to PKR 114.7 per share.
2. Sales Decline
Despite the impressive earnings, FY24 saw a 14% YoY decline in net sales turnover, totaling PKR 152.5 billion. This contraction in sales was primarily due to a 33% YoY decrease in sales volumes of completely knocked-down (CKD) units, a major revenue source for the company.
3. Toyota Corolla Cross Introduction
INDU launched the much-anticipated Toyota Corolla Cross in December 2023. This hybrid vehicle stands out for having the highest level of localization across the automotive industry. Its introduction has been a significant step towards boosting INDU’s product portfolio in the hybrid segment.
4. Localization and Capacity Utilization
Localization remains a key focus for INDU, with rates for the Corolla, Yaris, and Cross models between 50-65%, while IMVs have achieved a localization rate of 40-50%. Despite this progress, the company operated its production facilities at only 30% capacity utilization during FY24 due to market saturation.
5. Challenges and Opportunities
INDU is not facing any issues with Letter of Credit (LC) imports, a concern that has impacted many in the industry. However, the company anticipates potential plant shutdowns, driven more by cost-saving measures and lower demand.
To further localize its production processes, the company has approved an additional PKR 1.1 billion investment, bringing the total investment in localization to PKR 4.1 billion. This aligns with the company’s broader goal of increasing local content in its vehicles, which is crucial for long-term competitiveness.
6. Sales of Imported Used Cars
FY24 saw an unprecedented surge in the sales of used imported cars, which reached 38,561 units— a 5.8x increase from the 6,595 units sold in FY23. This spike can be attributed to the relaxation of duties and taxes on imported vehicles, which poses a significant challenge to local assemblers like INDU.
7. Price Reduction and Promotional Campaign
To mark the first anniversary of the Toyota Corolla Cross, INDU rolled out a limited-time price reduction for the vehicle. Management expects this promotional offer to achieve its booking target within the next 15 to 20 days, potentially driving short-term sales.
8. Future Outlook
Looking forward, INDU expects the broader automotive market to benefit from declining inflation and lower interest rates. These macroeconomic improvements should lead to a recovery in sales for the coming fiscal year. With its continued focus on localization and expansion of its hybrid vehicle offerings, the company is well-positioned to capitalize on the market’s recovery.
Conclusion
Despite a challenging year marked by declining sales and underutilized production capacity, INDU has demonstrated resilience through strong earnings growth, strategic localization efforts, and an expanded hybrid portfolio. While competition from imported vehicles and market saturation pose challenges, the company is optimistic about future recovery, supported by favorable economic conditions.