Friday, February 12, 20109

In Focus Autos: So far so good!

Auto ƒ 7MFY10 automobile sales have witnessed a 23% YoY increase to 73,597 units
from 59,913 units in the same period last year. This increase has come
despite poor law and order situation and limited financing facilities in the
country
Sana I. Bawani ƒ Small-high segment (1300cc+) recorded the largest YoY increase (63%) in
sana.iqbal@bmacapital.com 7MFY10 to 30,207 units followed by small-low (1000cc and above) and
economy segments (800cc+) at 15% and 12% respectively
ƒ Tractor sales also posted a significant improvement in 7MFY10 increasing by
28% YoY to 39,611 units from 30,997 units in the same period last year
ƒ In 7MFY10 share prices of PSMC and INDU have rallied by 30% and 120%
respectively. We believe the stocks have the potential to rally further in the
coming months based on 1) an expected rebound in its next year’s sales and
2) a strong growth in their earnings in FY10. Our top pick in the sector is
INDU with a DCF based fair value of PKR288/share calling for a BUY
recommendation on the scrip

23% YoY sales growth in 7MFY10

7MFY10 automobile sales have witnessed a 23% YoY increase to 73,597 units from
59,913 units in the same period last year. This increase has come despite poor law and
order situation and limited financing facilities in the country. INDU and HCAR have
posted the largest (54% and 26% YoY) increases in their unit sales during the period.
Growth number trajectory was partly aided by a low base effect due to last year’s
depressed sales. However, both the companies increased their car prices during FY10
and have yet managed to capture 45% of the market (INDU’s share: 35%, HCAR: 10%).
At the same time, PSMC recorded a meager 9% improvement in its sales during the
same period.
Total Car & LCV sales – Company-wise
Company 7MFY10 7MFY09 YoY Chg Jan-10 Jan-09 YoY Chg
PSMC 39,646 36,219 9% 5,971 3,481 9%
INDU 25,870 16,745 54% 4,968 3,414 54%
HCAR 7,250 5,763 26% 1,579 478 26%
DFML 831 1,186 -30% 56 105 -30%
Total Sales 73,597 59,913 23% 12,574 7,478 23%

Source: PAMA, BMA Research

Segment-wise analysis indicates that small-high segment (1300cc+) recorded the

largest YoY increase (63%) in 7MFY10 to 30,207 units followed by small-low (1000cc
and above) and economy segments at 15% and 12% respectively. Additionally, in

BMA Capital Management Ltd, 801 Unitower, I.I.Chundrigar Road, Karachi , 74000, Pakistan
For further queries, please contact: bmaresearch@bmacapital.com or call UAN: 111-262-111

This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. While the
1 information contained herein is from sources believed reliable, we do not represent that it is accurate or complete and
should not be relied upon as such. Opinions expressed may be revised at any time. This memorandum is for
information only and is not an offer to buy or sell, or solicitation of any offer to buy or sell the securities mentioned.
 Friday, February 12, 20109

7MFY10 Toyota Corolla, Suzuki Cultus, and Suzuki Mehran were the market leaders in
In Focus their respective segments holding 74%, 52% and 59% of segment sales.
Auto Declining market share of PSMC
YoY comparison of market shares held by each auto assembler shows that PSMC
which held 60% share in 7MFY09 lost its share to INDU and now holds 54% while
INDU’s share has increased to 35% in 7MFY10 from 28% in the same period last year.
The loss in PSMC’s market share can be attributed to 1) limited and costly financing
available and 2) middle-class consumers holding back their purchases. At the same
time, INDU’s sales were resilient despite the high costs of financing and higher car
prices as INDU’s target market (upper class) is less affected with availability of financing
facilities. Furthermore, enhanced use of Hilux for security personnel in the country and a
stable demand from the corporate front for Toyota Corollas led the company to improve
its market share during the year.
Market Share 7MFY10: Company Wise Market Share 7MFY09: Company Wise

DFML
HCAR DFML HCAR 2%
10% 1% 10%

INDU
INDU 28% PSMC
35% PSMC
54% 60%

Source: BMA Research Source: BMA Research

Tractor sales increase by 28% YoY in 7MFY10

Tractor sales posted a significant improvement in 7MFY10 increasing by 28% YoY to
39,611 units from 30,997 units in the same period last year. Various tractor schemes
including Benazir Tractor Scheme, Green Tractor Scheme and an upcoming one from
Sindh government have all contributed to this improvement. Millat Tractors Limited
(MTL) was the one to benefit the most during the period with its sales posting a growth
of 58% YoY while Al Ghazi Tractors (AGTL) registered a 2% increase in its sales.
Furthermore, MTL and AGTL used to hold a 50-50 market share earlier which currently
stand at 57% for MTL and 43% for AGTL.

BMA Capital Management Ltd, 801 Unitower, I.I.Chundrigar Road, Karachi , 74000, Pakistan
For further queries, please contact: bmaresearch@bmacapital.com or call UAN: 111-262-111

This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. While the
2 information contained herein is from sources believed reliable, we do not represent that it is accurate or complete and
should not be relied upon as such. Opinions expressed may be revised at any time. This memorandum is for
information only and is not an offer to buy or sell, or solicitation of any offer to buy or sell the securities mentioned.
 Friday, February 12, 20109

Total Tractor sales – Company-wise

In Focus Tractor Co. 7MFY10 7MFY09 YoY Chg Market share
Auto AGTL 17,039 16,678 2% 43%
MTL 22,572 14,319 58% 57%

Total Sales 39,611 30,997 28%

Source: PAMA, BMA Research

Outlook
PKR continues to depreciate against USD and JPY while steel prices have shown some
stability. These factors in addition to inflation are likely to continue to put upward
pressure on cost of production, however margins are expected to be stabilized by
upward revision of product pricing by the auto sector.
Additionally, in 7MFY10 share prices of PSMC and INDU have rallied by 30% and 120%
respectively. We believe the stocks have the potential to rally further in the coming
months based on 1) an expected rebound in its next year’s sales and 2) a strong growth
in their earnings in FY10. Our top pick in the sector is INDU with a DCF based fair value
of PKR288/share calling for a BUY recommendation on the scrip.

BMA Capital Management Ltd, 801 Unitower, I.I.Chundrigar Road, Karachi , 74000, Pakistan
For further queries, please contact: bmaresearch@bmacapital.com or call UAN: 111-262-111

This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. While the
3 information contained herein is from sources believed reliable, we do not represent that it is accurate or complete and
should not be relied upon as such. Opinions expressed may be revised at any time. This memorandum is for
information only and is not an offer to buy or sell, or solicitation of any offer to buy or sell the securities mentioned.