Consumers still preferring local cars
RECORDER REPORT
KARACHI (January 30 2006): The consumers are still preferring locally assembled cars over the imported vehicles, which registered an increase following the government's decision to reduce duties and sales and production recorded handsome growth in six months ended December.
After depicting an excellent growth of 32 percent in FY05, the local car sales have posted yet another growing pattern in 1HFY06. This shows that consumers still prefer locally assembled cars despite rising imports of used and new cars after the Budget FY06.
Faraz Farooq, research analyst at Jahangir Siddiqui Capital Markets Ltd., said that the sales of the locally assembled cars in Pakistan surged by 25 percent during the first six months (Jul-Dec 2005) of the current fiscal from 57,010 to 71,027 units. Production of cars depicted 29 percent increase and reached 73,005 units during 1HFY06 as against 56,671 units previously. Only in December 2005, sales showed 11 percent growth to 12,168 vehicles versus that of 10,963 in December last year. On a MoM basis, a 4 percent growth was seen in December sales from 11,749 vehicles sold in November.
Faraz said that it was assumed that the increase in interest rates would have a negative impact on car demand but so far it had yet to cause a stir. Besides, another fear was that the arrival of used and new cars would change the market scenario and buyers would go for foreign cars. So far, the budgetary decision of cutting import duties on CBUs had yet to pose any serious threat to the local assemblers as the overall pie is growing and even many buyers are still reluctant to take the risk of purchasing imported cars.
Amongst the four listed car assemblers, Pak Suzuki was able to sell maximum number of vehicles. During 1HFY06, Pak Suzuki sales registered a 29 percent increase and reached 43,694 vehicles. Pak Suzuki's expansion plan has paid off well for the company where the company had increased its production capacity to 80,000 units effective January 2005, while recently it has been raised to 100,000 per year.
Honda Atlas Cars depicted the highest growth of 53 percent during 1HFY06 as the company sold 14,253 units versus 9,288 units during 1HFY05. Indus Motor's sales during this period soared by 12 percent to 19,079 vehicles compared to 16,993 vehicles sold during the same period of last year.
DFML sales posted 6 percent increase to 7,176 vehicles in 1HFY05.
Faraz said: "Second half sales are usually higher than 1st half. We have analysed past five fiscal years data of car sales in order to arrive at a relationship between sales of 1st half (Jul-Dec) versus that of the later half (Jan-Jun) of the fiscal year." He said: "Our analysis revealed that during each of the past five fiscals (FY01-FY05), the second half sales were found to be considerably higher than that of the 1st half sales. During FY02 it rose 21 percent, FY03 48 percent, FY04 23 percent and FY05 23 percent. Thus, one can also assume this trend to be repeated in the current FY06."
"We maintain our 'Over-weight' stance on car assemblers. Local car sales are expected to maintain the growth momentum going forward. With car assemblers enhancing their production capacities, we expect car sales to touch 150,000 up 18 percent in FY06. PE of car manufacturing sector arrives at 6.2x based on FY06 earnings with dividend yields 4 percent against the market FY06E PE of 10.5x and dividend yield of 5.4 percent."