Decision comes after 1% hike in customs duty on CKD units, imported parts. PHOTO: FILE
Contrary to government’s statements over how the mini-budget would only affect those consuming imported, “luxurious” items, Pakistanis looking to buy home-assembled Toyota Corollas will also feel the heat.
Pakistan breaks record for highest number of cars sold in a month
Indus Motor Company (IMC) - makers of Toyota Corolla in Pakistan - announced on Friday that the company has increased its car prices by Rs15,000 to Rs30,000 depending on the variant. The decision has been implemented with immediate effect due to the 1% increase in customs duty on completely knocked-down (CKD) and imported parts.
However, this is coming at a time when the auto sector’s gross margin is continuously improving, Sherman Securities analyst Sadiq Samin commented on Friday.
“Pakistan’s auto sector is highly protected. This fact becomes important when auto companies pass on new taxes but do not share lower-cost benefits with customers,” he stressed.
Pakistan's Japanese-dominated car market poised for new entrants
For instance, he added, the benchmark US-steel price (CRC) is trading at $550 per ton, which is significantly lower than the average CRC price of $650 per tonne during 2015, contributing to auto sector’s margins.
IMC’s earnings per share (EPS) improved to Rs37.3 in July to September 2015 compared to Rs14.3 in the same quarter in 2014, up by a massive 160%.
Since steel makes up a large chunk of cost of production, auto assemblers were the biggest beneficiary of lower steel price, which went down by 25%. During the first quarter of fiscal year 2015-16, gross margin of a sample of 11 automobile companies expanded by 300 basis points to 15% from 12% in the same period of previous fiscal year.
Automobile industry is enjoying a period of strong sales and earnings growth due to growing demand for cars, commercial vehicles, buses, motorcycles and trucks, thanks to record low interest rates and lower fuel prices.
Used car sales to fall, state revenues may take a hit
In first quarter Jul-Sep 2015-16, local car assemblers posted strongest revenue growth of 49% year-on-year to Rs55.7 billion. The sales of cars and light commercial in the first quarter of 2015-16 jumped to 55,000, up 72% compared to 32,000 units in the same quarter of last fiscal year.
Pakistan’s auto sector posted robust profit of Rs7 billion during Jul-Sep 2015, up 74% compared to Rs4 billion during Jul-Sep 2014, according to Sherman Securities analysis based on 11 listed auto assemblers.
Competition with imported used cars
The government has increased 10% import duty on all used imported cars that are above the 1,000cc engine category. Local carmakers benefit from this because used imported cars are in direct competition.
The new duty has increased the price on all cars that falls under 1,001cc-1,300cc category by Rs95,942. The prices for cars that fall under 1,301cc-1,500cc category have jumped by Rs135,118. Cars that fall under 1,501cc-1,600cc will now cost an additional Rs163,902 while the prices of cars with 1,601cc-1,800cc (excluding jeeps) have now jumped by Rs203,078.
Car sales speed up by 89%
Published in The Express Tribune, December 5th, 2015.
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