11HNovember 2019

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Indus Motor Company Limited REN # REP-004 REN # REP-400R

Key Takeaways

PSX: INDU Bloomberg: INDU: PA Reuters: INDM. KA Pakistan Research

1QFY20: Analyst Briefing Key Takeaways
▪zINDU reported a decline of 62% YoY earnings during 1QFY20 INDU, which clocked in at PKR
Key Data
16.78/share owing to; 1) rise in input cost as result of PKR devaluation, 2) shift in product mix
towards ‘Corolla’ from ‘Hilux & Fortuner’ and 3) 4.8pps contraction in margins to settle at 9.7%. PSX Ticker INDU
▪ During 1QFY20, volumes witnessed a decline of 56.5% YoY with ‘Corolla’ volumes decreasing by Target Price (PKR) 983
58.3% YoY, while ‘Fortuner & Hilux’ volumes dropped 56% & 42% YoY. Resultantly, the company Current Price (PKR) 1,104
revenue fell by 41% YoY to PKR 20.72bn. Upside/ (Downside) (%) - 11%
▪ As per management, the rigorous marketing campaigns and aggressive promotional campaigns in Dividend Yield (%) 5%
collaboration with banks for financing facilities have somewhat supported the ailing sales
Total Return (%) - 6%
volumes.
12-month High (PKR) 1,440.0
▪ From the market perspective, the management expects sales volume to witness some
12-month Low (PKR) 915.0
improvement from 2HFY20.
Outstanding Shares (mn) 78.60
▪ Management of the company has decided to keep the current prices unchanged until further
devaluation. However, the slowdown in sales volumes remains a major concern in order to keep Market Cap (PKR mn) 86,800
business operations smooth. The company is running its production plant on a single shift basis Year End June
utilizing 40% of the capacity. Source: Company Accounts, Akseer Research
▪ Responding to the electric vehicle related query, management highlighted that no consensus has
been reached so far between the assemblers and the government regarding any production plan
of electric vehicles.
▪ The company also highlighted that some short-term financing facility may be required as the
company has started facing working capital issues. However, the management did not highlight Musadiq Jawaid
any amount which it is likely to borrow. musadiq.jawaid@akseerresearch.com

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11 November 2019 Indus Motor Company Limited Key Takeaways

Valuation Basis
Our PT for Indus Motor Company Limited (INDU) has been computed using free cash flow to equity
(FCFE) method. We have used a risk free rate of 13.0%, beta of 1.0 & market risk premium of 6% to
arrive at cost of equity of 19.0%.
Investment Thesis
We have a ‘HOLD’ recommendation on the stock based on our Jun-20 PT of PKR 983/share which
result in downside of 11.0% along with a dividend yield of 4.9%. Our investment case on INDU is
based on 1) Significant fell in sales volume during FY20 & FY21 and recovery from FY22 onwards, 2)
gradual expansion in margins due to better fixed cost coverage 3) Low other income levels.
Risks
Key downside risks to our investments thesis are 1) higher than anticipated increase in steel prices,
2) lower than anticipated growth in demand 3) higher than expected PKR depreciation and 4) steeper
than anticipated decline in margins.
Company Description
Indus Motor Company manufactures and markets Toyota brand vehicles in Pakistan. The main
product offerings include several variants of the flagship ‘Corolla’ in the passenger cars category,
‘Hilux’ in the light commercial vehicles segment and ‘Fortuner’ Sports Utility Vehicle. IMC was
incorporated in 1989 as a joint venture company between certain Hous of Habib Companies, Toyota
Motor Corporation and Toyota Tsusho Corporation.
Financial Highlights - INDU
Income Statement (PKR mn)
FY17A FY18A FY19A FY20E FY21F FY22F
Net sales 112,272 140,208 157,996 101,996 124,097 155,209
Cost of sales 92,450 115,831 138,805 92,956 112,970 139,478
Gross Profit 19,822 24,377 19,192 9,040 11,127 15,732
SG & A 2,281 2,808 2,814 2,684 2,894 3,068
Operating Profit 19,539 23,572 19,043 9,347 11,033 14,664
Other income 3,593 3,901 4,307 3,928 3,863 3,334
Other charges 1,595 1,898 1,641 937 1,063 1,334
Finance cost 398 572 67 74 135 163
Profit before tax 19,141 22,999 18,976 9,273 10,898 14,500
Taxation 6,140 7,227 5,261 2,689 3,160 4,205
Profit after tax 13,001 15,772 13,715 6,583 7,737 10,295
Source: Company Accounts, Akseer Research

Balance sheet (PKR mn)

FY17A FY18A FY19A FY20E FY21F FY22F
PPE 6,258 7,225 13,805 13,546 12,682 11,873
Other LT assets 180 159 121 93 75 64
Non-Current Assets 6,438 7,384 13,925 13,639 12,757 11,936
Current assets 57,441 74,543 50,858 47,603 55,209 64,716
Total Assets 63,880 81,927 64,783 61,242 67,965 76,652
Non-Current liabilities 3.933 22.711 478.38 478.38 478.38 478.38
Current liabilities 32,679 45,160 24,179 18,298 22,322 27,402
Total Liabilities 32,683 45,183 24,738 18,857 22,874 27,947
Equity 31,197 36,744 40,045 42,384 45,091 48,706
Total Equity & liabilities 31,197 36,744 40,045 42,384 45,091 48,706
Source: Company Accounts, Akseer Research

Cashflow statement (PKR mn)

FY17A FY18A FY19A FY20E FY21F FY21F
Net Income 13,001 15,772 13,715 6,583 7,737 10,295
Non-cash Charges 1,603 1,407 2,121 3,050 2,916 2,725
Operating Cash flows 20,718 25,120 -11,506 11,593 11,867 14,391
FCFF 17,979 23,140 -20,165 8,884 9,931 12,605
Net borrowings - - 80.54 - (6.93) (7.16)
FCFE 17,708 22,748 -20,134 8,832 9,828 12,482
Net change in cash 484 (1,020) 1,081 4,119 4,320 5,314
Closing cash 3,221 2,201 3,282 7,401 11,721 17,035
Source: Company Accounts, Akseer Research

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 11 November 2019 Indus Motor Company Limited Key Takeaways

Disclaimer
This report has been prepared and marketed jointly by Akseer Research (Pvt) Limited and Alfa Adhi Securities (Pvt) Limited, hereinafter
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Valuation Methodology
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methodology, and 3). Asset-based valuation methodology.
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JV employs a three-tier ratings system to rate a stock, as mentioned below, which is based upon the level of expected return for a specific
stock. The rating is based on the following with time horizon of 12-months.
Rating Expected Total Return
Buy Greater than or equal to +15%
Hold Between -5% and +15%
Sell Less than or equal to -5%
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The research analyst, denoted by ‘AC’ on the cover of this report, has also been involved in the preparation of this report, and is a member
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this report.
Pakistan Research Team
Sohaib Subzwari Muhib ur Rasool Saad Nandia
sohaib.subzwari@akseerresearch.com muhib.rasool@akseerresearch.com saad.nandia@akseerresearch.com
Musadiq Jawaid
musadiq.jawaid@akseerresearch.com
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