Indus Motor Company Limited (INDUS)


Dear Clients,

Indus Motor Company Limited (INDU) held its analyst briefing today to discuss 2QFY21 results and the company outlook going forward.

Key Highlights

– The company reported an increase in its market share to 24.7% in 2QFY21 as compared to 17.9% last year. The company enjoyed the success of the new model launch of Yaris and pent-up demand. To recall, INDU sold 23,139 units during the period as compared to 14,183 units last year.

– The management does not expect a swift dent in demand from any incoming rate hikes immediately. Currently, low-interest rates have helped pick up demand for vehicles and affordability. INDU sees the market growing to 300k in two years.

– Discussion with the management revealed Toyota Fortuner TRD has received a better-than-expected response so far. On the question of comparison and competition posed by newly launched KIA Sorento, management believes the vehicles offer different capabilities and power delivery. This may remain a distinguishing factor on the consumer end.

– Delivery times are being addressed with alternate cargo delivery channels. This comes at a cost. On the other hand, a rise in steel prices is currently being absorbed by the manufacturers. We think the manufacturers are retaining the benefit of PkR appreciation to shield from cost run-up induced by steel price spikes.

– The manufacturer has received excitement over Corolla Altis X (minor facelift) lineup. The company expects monthly operational production to surpass 6,000 units going forward. The company continues to operate on double shifts since Sept’20 to meet order influx.

– Additional custom duty charged at 7% on auto parts remains challenged. However, the same continues to occupy the working capital requirements.

– The management remains cautious on cash deployment as the business remains capital intensive. To highlight, a new model launch requires an investment of PkR17bn.

– Commenting on the hybrid electric vehicle (HEV) policy, the management has been pushing for the same along with other manufacturers. The management believes incentives for EVs should be extended to HEVs for CKD development. However, there is no material development in this regard so far.

– The stock trades at a forward P/E of 5.0x. We have an Outperform rating on the stock.

KASB Research

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