AIDC set to discuss business plans of two auto companies
MUSHTAQ GHUMMAN APR 11TH, 2017 ISLAMABAD
The Auto Industry Development Committee (AIDC) is all set to discuss business plans of M/s Daehan Dewan Motor Company and Al-Haj Faw Motors (Pvt) Ltd on April 13, 2017. However, business plan of M/s Pak Suzuki is not being treated at par with those of the other two companies.
According to official documents, the AIDC will discuss implementation of ADP 2016-21 regarding reimbursement /adjustment @ Kibor plus 2 per cent on delivery beyond 60 days and recommend a legislation. Automotive Development Policy 2016-21 was approved by the ECC of the Cabinet on March 18, 2016 which became effective from 1 July 2016. Under the policy certain consumer welfare measures were taken by Government of Pakistan to facilitate end consumers. Among the other measures the following measure was taken to address vehicle delivery issues:
The amount of advance payment shall be limited up to 50 percent of the total price. Price and delivery schedule, not exceeding two months, shall be firmed up at the time of booking. Any delay over two months shall result in a discount @ KIBOR+2 percent prevailing on the date of final delivery/settlement from the final payment, which shall help shorten delivery lead time.
In pursuance of the ECC's decision, Ministry of Industries & Production issued a notification which was circulated by EDB to OEM's to ensure compliance. Among the car manufacturers so far, M/s Honda Atlas Cars (Pakistan) Ltd, and M/s Indus Motors Company Ltd, have shown compliance while feedback from Pak Suzuki Motor Co Ltd is awaited. Ministry of Industries & Production's recent stance on the matter is to discuss the issue in AIDC.
The sources said, M/s Regal Automobiles Industries Ltd (RAIL) applied for the greenfield investment incentives under New Investment Policy of ADP 2016-21 for establishing auto assembly plant in Lahore for the production/ assembly of light commercial vehicles (LCVs) and Mini Van/ Bus. RAIL has signed Technology Transfer agreement with DFSK Motor Co Ltd, a subsidiary of Dongfeng Motors Corporation, China. Initially, M/s RAIL did not have exclusive rights for assembly/manufacture & sale of DFSK Motor Co Ltd's vehicles in Pakistan. However, after completion of first year their principals have agreed to provide exclusive rights to RAIL.
M/s Tayyaba Motors (Pvt) Limited approached EDB informing them that M/s RAIL's principals are the same ie Dongfeng Sokon and DFSK, even their factory address is the same. Further, they have noted that vehicles offered by both of them are physically the same with the only difference of label/ logo. In view of the above M/s Tayyaba Motors (Pvt) Limited requested that M/s Regal Automobile Industries Ltd, cannot avail the concessions of Greenfield investment under ADP 2016-21.
According to sources, M/s Daehan Dewan Motor Company (Pvt) Ltd, applied through BoI for revival of manufacturing plant M/s Dewan Farooque Motors Limited (DFML) and requested for grant of brownfield investment under the Automotive Development Policy (2016-21) for the production of Shehzore (LCV) and Ssangyoung (SUVs) vehicles.
Earlier, DFML plant operations were initially shut down in October 2010, (with in hand stock of 908 kits of CKD including 210 Santro and 698 of Hyundai Shehzore). After special approval of Auto Industry Development Committee (AIDC) (16th meeting) DFML resumed production from September 2013 to February 2014 to consume the left-over inventory. At that time, ie September 2013 to February 2014, M/s Dewan Farooq Motors did not have an agreement with the principal for further import of CKD and the company just wanted to utilise the CKD already lying with the company.
As per ADP 2016-21 "brownfield" Investment is defined as revival of an existing assembly and/or manufacturing facilities, that is non-operational or closed on or before July 01, 2013 and the make is not in production in Pakistan since that date. A meeting was held in Ministry of Industries & Production to discuss the issue in detail. According to the minutes of the meeting, EDB was required to review the case in AIDC. The AIDC keeping in view its previous decision (16th meeting of AIDC), is required to discuss the following:
In view of no CKD imports the lapse of agreement date and temporary operations to consume left-over inventory from September 2013 to February 2014, the plant can be considered as operational. Engineering Development Board (EDB) has sought AIDC's advice with regard to benefits under brownfield investment category to DFML.
M/s Al Haj Faw Motors (Pvt) Ltd, the manufacturer of trucks, prime movers, light commercial vehicles and vans intend to invest in car manufacturing. BoI has recommended incentives under New Investment Policy of ADP 2016-21 to M/s Al Haj FAW. EDB has sought AIDC advice on this issue keeping in view the investment categories ie Greenfield investment or brownfield investment, elaborated in the ADP 2016-21.
EDB has consulted the issue with different stakeholders and the common understanding developed is as follows: either the benefit will have to be extended to existing players for certain time period lesser than Green field investors (say 2 years)
If an existing player intends to invest in different category of vehicles ie a truck manufacturer to launch a car or vice versa may be considered for grant of incentives. The AIDC will also discuss Free Trade Agreements (FTAs) with Thailand and Turkey and Pakistan's stance. The sources said, a PAAPAM delegation visited Bangkok last month and a meeting was organised through Embassy of Pakistan in Bangkok. PAAPAM is requested to update its stance on FTAs with Thailand & Turkey keeping in view national interest and to ensure a win-win situation for partner countries. AIDC is requested to advise future course of action.
The committee will consider amendment in SRO regarding installation of E.D Paint facility for cars, LCVs and HCVs. ED paint facility was mandatory under SRO 656(1)/2006 dated 22.06.2006 for OEMs manufacturing HCVs in the country from a couple of years. However, this restriction was also implemented on Cars & LCVs manufacturers in the Budget 2016-17 and is effective from 1st July, 2016. Three Japanese car manufactures already have this facility; however, this facility was not available with some LCV manufacturers. These LCV manufacturers approached EDB stating that the installation of ED paint facility requires heavy investment as well as time and requested for relaxation for some time so that they can install this facility at their plants. EDB has also sought relaxation be extended to New Investors applying under ADP 2616-21?
Pakistan Automobiles: Mar 2017 sales up 17% YoY; at par with expectations
11 April 2017
By: Topline Securities (Private) Limited
Auto sales (including LCV’s and Jeeps) continued to witness robust double digit growth in 9MFY17 (ex-Taxi scheme). Our expectation for car sales in FY17, stand firm at 270k units, including imports of 60k units.
Mar 2017 car sales (including LCV’s and Jeeps) came at par with our expectations. On MoM basis, sales registered a growth of 4%.
Pak Suzuki Motor Company’s (PSMC) volumes remained strong (ex-Taxi scheme) due to healthy sales volumes of Wagon-R and Bolan in 9MFY17. For the first time ever, ‘Wagon-R’ sales crossed 1,700 mark in Mar 2017.
Cultus’ production declined to 710 units (-53% MoM) as PSMC gears up to launch ‘Celario’ named as ‘New Cultus’ later this month (official launch expected next weekend)
Automotive sales totalled 20,486 units growing 4.1%MoM and up 16.5%YoY, marking the running out of the high-base from the Rozgar scheme. Cumulative, 9MFY17 industry sales exhibited stability resting at 158,589 units (down 5%YoY) on the back of continued uptrend in tractor sales (37,815 units sold, rising 50%YoY) as passenger car/LCV sales remained lacklustre (139,551/19,038 units sold, +1.71-35.9%YoY). In the passenger car segment, 1000cc segment exhibited 32%YoY for 9MFY17 (24,501 units sold, led by Wagon R sales growth of 84%YoY), followed by the 1300cc segment rising 11%YoY (72,076 units sold as HCAR sales climbed 52%YoY) and the 800cc and below segment fell 20%YoY (42,974 units sold in the last month with the Rozgar base).
PSMC: Recording volumetric sales of 10,757 units in March' 17, up 3% MoM / 19% YoY during the last month based against Rozgar sales. Adjusted Rozgar sales growth stood at 18%YoY for the month. Cumulative sales volume for 9MFY17 amounted to 84,724 units (down 16%YoY) whereas on a Rozgar adjusted basis growth of 13%YoY is recorded. Sales growth continues to be led by the Wagon R (up 84%YoY), Swift (up 9%YoY) and Cultus (up 1%YoY). March marked the last full production run for the phased out Cultus as bookings concluded in Feb' 17, and March' 17 production fell to 710 units vs. 5-yr average of ~1 ,500 units per month.
Channel checks suggest substantial expected demand for the new Celerio but booking is expected to commence from the end of April with deliveries to begin by Jun'17. Details of price points and specifications are yet to be released.
INDU: The OEM posted sales of 5,934 units during Mar'17 gaining 7%MoM, while maintaining growth of 2.6%YoY. Sales volumes of Corolla were at 5,193 units exhibiting some expected weakness (-2%YoY) but recovering from a trough in Feb'17 by rising 12%MoM. On a cumulative basis, 9MFY17 sales figures for the Corolla clocked in at 40,694 units softening by 6%YoY while newly launched LCVs, the Hilux (sales growth of 14%YoY) and the Fortuner (90%YoY rise) supported INDU's aggregate sales of 45,744 units (down 4%YoY). Pointedly, INDU continues to hold on to 56.5% of the 1,300CC segment, falling from 66.8% in 9MFY16.
Outlook: Concrete business plans for new entrants continue to flow in (see table with updates) with approvals from relevant authorities still pending. As we await the materialization of these plans, we retain our liking for INDU which has returned 5.3%CYTD deteriorating upsides to our investment case (FCFE based TP of PkR1,915, FY17E/18F PE of 11.4/11.0x). Despite this, we believe further upsides may arise from capacity increments to the plant as part of BMR/capacity enhancement activity.
Additional capacity could translate into higher sales where a 5,000 unit increase in Corolla sales contributes PkR965mn (PkR12.3/sh) to earnings. Capacity enhancements also bring to fore the question of new modellaunches to keep up utilization levels, post enhanced capacity.
As per the latest Pakistan Automotive Manufacturers Association (PAMA), total OEM sales for 9MFY17 recorded a growth of +19%YoY to 1.41mn units, with Tractors registering a +73%YoY growth to 38.4k units. Passenger cars, recorded a +2%YoY growth to 139.5k units, led by +32%YoY jump in sales of 800-1,000cc engine category.
We maintain our overweight stance on automobile assemblers, with a “BUY” call on PSMC with target price of PKR 741/share offering an upside of +19.4% from its last closing. We have a “HOLD” call on HCAR/INDU with a target price of PKR 721/share / PKR 1,816/share providing a downside/upside of 7.1%/+8.3%.