Posted 08 August 2006 - 05:15 PM
Indus Motor Company Ltd. – Speeding Ahead!
Indus Motor is one of the key players of Pakistan’s automobile industry. The earnings growth momentum of the company is expected to remain steady driven by increased sales volumes and greater focus on trading business to tap the higher-end segment of the car market. Indus Motor’s Toyota Corolla is considered to be the most successful passenger car in Pakistan. According to the figures released by the Pakistan Automotive Manufacturers Association (PAMA), CKD sales volumes of the company during FY06 depicted 17% upsurge to 40,961 vehicles. Indus Motor’s FY06 earnings are expected to soar by 72% to Rs2,547m translating into an EPS at Rs32.41. 129% exceptional hike in other operating income is to support the earnings growth. The robust demand picture of locally assembled cars enables auto assemblers to aggressively expand their production capacities. Indus Motor is also pursuing capacity augmentation projects and the company’s production capacity is projected to soar to 100,000 units per annum by 2009. At current levels, Indus Motor is trading at a prospective FY07 PER at 6x and placed at 10.6% discount to our Rs245 DCF fair value.
Executive Summary Introduction Indus Motor Company Limited is one of the key automobile assemblers of Pakistan. The company is a joint venture between the House of Habib, Toyota Motor Corporation, Japan and Toyota Tsusho Corporation, Japan. Currently, Indus Motor assembles two models of Toyota (Corolla and Hilux) and a single model of Daihatsu Cuore. It has 28 dealers nation-wide while the number of vendors stands at 70. The company has shown tremendous growth in profitability over the last couple of years. Taking advantage of the liberalized import policy, the company has also entered into the trading business by introducing luxurious Toyota brand cars.
End of the deletion era Since the inception of Pakistan’s automobile industry, it was operating under the deletion programme in which the assemblers had to meet deletion targets set by the Engineering Development Board (EDB). As per the WTO requirements, the government was required to put an end to the deletion programme for the auto industry. However, Pakistan had approached the WTO Council of Trade and Goods for an extension to abolish the deletion programme. Pakistan was granted an extra waiver of five years, which expired in June 2006. Thus, the government has introduced the new “Tariff Based System” for the automobile industry of Pakistan. We expect that the new system will encourage localization of automobile parts, which will ultimately result in substantial foreign exchange savings.
Steady demand growth going forward We anticipate that car demand going forward will remain steady given that interest rates are likely to remain firm in the future. Strong overseas remittances and sustained individual disposable income are also to support the sanguine demand outlook. As far as the imported cars are concerned, we expect that locally assembled cars have an edge over them on the back of availability of their spare parts, higher re-sale value and technical know-how of local vehicles amongst the car mechanics.
Stunning growth in imports of vehicles The financial year 2005-06 came up with the liberalized auto import policy, which resulted in the heavy influx of imported cars. According to a leading newspaper report, a total of 45,479 units of used cars, jeeps and Sports Utility Vehicles (SUVs) have been imported under the transfer of residence, personal baggage and gift schemes during FY06, portraying 283% upsurge compared to 11,877 vehicles during FY05.
Indus Motor offers 12% upside potential Indus Motor is set to emerge triumphant amongst the auto assemblers of Pakistan. Its product Toyota Corolla has a dominant position in the 1300cc and higher segment of the car industry. Despite the liberalized auto import policy, local car sales have shown phenomenal growth during FY06 and Indus Motor’s products are not an exception. This sharp demand outlook of locally assembled cars enables auto assemblers to enhance their existing production capacities. Indus Motor is also pursuing an aggressive capacity expansion plan. For the year FY06, we expect earnings of the company to mark 72% increase to Rs2,547m as against Rs1,485m last year. For FY07 profitability is projected to soar 13% to Rs2,885m. Our DCF fair value of Indus Motor is Rs245, offering 12% upside potential.
Indus Motor - Detailed Report from LIVE SECURITIES RESEARCH 08/08/06
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Regards,
Abdul Mateen Khan
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AbDuLmAtEeNkHaN, on Jul 25 2006, 09:07 AM, said:
