What’s behind the high climb of the auto sector stocks?
In the recent one and a half month, the stock prices in the auto sector have seen a massive gain which has raised questions if this is a result of an artificial rise.
A massive rise of 74% in the stock prices of Pak Suzuki has been observed during this tenure which currently stands at Rs.302 as on 15th February 2019. The upward trend in stock prices began at the start of 2019 before which the price for Pak Suzuki stocks was recorded at Rs.174 on 31st December 2018. The whopping gain, particularly in the case of Pak Suzuki has raised several question marks in the market. It has made everyone wonder of an artificial phenomenon which in reality doesn’t seem to be the case. The auto-sector analysts have a different school of thought who considers it as a result of technical and fundamental reasons.
When we look back into May 2017, the stocks were trading at a whopping price of Rs.936, after which the market went through a crumbling situation thus declining the Pak Suzuki shares by 81%, settling at Rs.174 at the end of 2018. However, the market rebounded after hitting its lowest price. On the other hand, the government policies for auto-sector have fundamentally benefitted Pak Suzuki in recent times. One major episode of which has been lifting the ban on non-filers for purchasing new cars up to 1300cc announced at the supplementary finance bill (mini-budget) presented by Finance Minister Asad Umar on 23rd January 2019. Perhaps the decision came at the cost of paying additional tax as a penalty for non-filers. The ban had resulted in affecting the production and sales of the automaker by 32%. Besides this, the company’s plan to introduce the all-new locally assembled Alto instead of Mehran received a considerable blow. But, fortunately, everything fell in place for the company before rolling out the eighth generation of Alto.
Moreover, the interest of investors in the stocks also climbed once the decision of Suzuki to invest $460 million hit the news for setting up a new plant adjacent to the existing one. The auto-sector of Pakistan is through its growing phase with new entrants planning to roll out their vehicles, yet the industry fails to stay contented. The assemblers of heavy commercial vehicles (HCV) raised their voice for not being offered any benefits in the decision to lift the ban on non-filers for purchasing cars up to 1300cc. Honda Pakistan is also hoping against hope for an extension in the engine capacity limit to this lift of ban as it only benefits Suzuki, Toyota, United, and FAW.
The auto sector watchers are having a close look at the proceedings as there is an expectation of a cooling-off period. At the moment, the industry is facing a challenge of regulatory uncertainties, sluggish economic growth, a devaluation of rupee against the US dollar along with the considerable fall in the purchasing power of consumers. However, the wind of change is knocking at the door with the new entrants making their way into the automobile market of Pakistan. The time is not far away when existing assemblers face head to head competition with the foreign players rolling out their vehicles in a joint venture with the local investors. KIA Lucky Motors, Nishat Hyundai, United Auto, Al-Futtaim Renault, Dewan Motors, Regal Auto Volkswagen, Ghandhara Nissan, and BAIC Sazgar are among the beneficiaries of receiving a Greenfield status on the back of the incentives offered to the new entrants by the Automobile Policy 2016-2021. In the heavy vehicles segment, Master Foton Motors is planning to assemble the Italian Iveco trucks in Pakistan.
The Ministry of Commerce, on the other hand, has regulated the process of import of cars which requires the payment of duties and taxes in foreign exchange directly by the person sitting abroad importing the vehicle. The illegal practice of charging premium money on imported cars, adopted by the dealers has also been dealt with a great extent with the implementation of this condition. The import of vehicles was only allowed in the case of baggage, transfer of residency or a gift scheme. However, the traders used the practice of importing vehicles in the name of unlettered people which is no more possible.
According to a research analyst of Topline Securities, the decline in auto sales would continue despite the announcement of economic reforms in the automobile sector. A 4% drop in the year on year sales was observed in January as compared to a 1% increase in the last month of 2018. A total of 143,000 units were sold during the first seven months of 2018 which, according to the stats is down by 3% on year on year sales. Indus Motors, however, reported a year on year growth of a whopping 16% in January 2019 mainly due to the booking orders of Corolla variants that alone recorded a 26% rise in the sales annually. The sales of Hilux and Fortuner variants was recorded down by 5% and 45% respectively on an annual basis. The sales of Honda Pakistan also went through a rise of 3% year on year due to its popular models of City and Civic. Otherwise, BR-V stood by its declining chart recording a further 2% drop in sales on an annual basis.
The stock price of Indus Motor was recorded as high as Rs.1293 whereas a share in Millat Tractors was reported at Rs.858. Others include Al-Ghazi Tractors with a stock price of Rs.483, Hinopak Motors with Rs.458; Atlas Honda recorded at Rs.384, Honda Atlas cars at Rs.233 and Pak Suzuki on the rise at Rs.302. While observing a sluggish auto sales trend, an executive of automobile company said that it had been a major cause of hitting the stockpile of cash of many companies. He added that the automobile companies are now willing to deliver cars within one month of its booking time as compared to the previous practice of delivering in four to six months.
The auto sector of Pakistan is in a state of high competition in the next few years. How do you see the automobile industry flourishing in the future? Let us know and stay connected with Citycar for this and other automobile related news updates.