The Automobile sales for March 2020 have recently come out. As expected, there is a Year on Year fall of 50%, 59% and 78% seen in Indus Motors, Honda Car and Pak Suzuki Motors, respectively. Similarly, we have seen a 67% and 33% decline in the sales of Tractors for Al Ghazi Tractors and Millat Tractors, respectively. The decline was anticipated because of lockdown imposed across the country by mid-March.
The fears of coronavirus have precipitated one of the steepest falls in the sales of Automobiles in the country with the decline largely a consequent to: i) consumers delaying purchase plans, ii) contraction in the economy reducing demand from businesses, and iii) unforeseen decline in the purchasing power due to unemployment.
Note that the State Bank of Pakistan has eased interest rates by 225 bps, potentially reinvigorating auto sales at a later stage via car financing. The currency decline from PKR 155 to PKR 168 may, however, jack up assembling costs and may likely shrink the industry margins if additional costs are not passed through amid a low-demand scenario.
We expect the decline to be even sharper in the month of April as government contemplates extending the national lockdown. Even if the conditions are relaxed, Automobile Assemblers fall lower in the merit-order than essential services, construction sector, export sector and agricultural sector. The valuations, though attractive, are pricing in most of the delayed consumption phenomena as the industry braces for the worst demand-decline in April.