Local car sales look set for strong recovery in second half

Demand may have increased 30-35% in January alone.

KARACHI: After a dismal performance in the first half (July-December) of fiscal 2012-13 (1HFY13), sales of the local car industry are expected to surge, especially in the fourth quarter, with a decline in imports, says a report released by Topline Securities.

The first half of FY13 was trouble for the automobile industry, as the ban on compressed natural gas (CNG) kits, a halt to production of cars not complying with Euro-II standards, and an influx of used imported cars in the country significantly dented sales of domestic assemblers.

However, with import restrictions taking effect, it is expected that there will be more sales of domestically assembled vehicles in the coming months, with a notable recovery in the fourth quarter of FY13, the report says.

According to the brokerage house, in January, sales of locally assembled cars may have increased by 30-35%.

A depressed first half

In 1HFY13, sales of local cars dropped to 57,540 units compared to 81,944 units in the corresponding period of the previous year.

This happened because of a ban on CNG kits, termination of production of non-Euro-II compliant Daihatsu Cuore and Suzuki Alto, the absence of a taxi scheme and a lenient import policy.



Simultaneously, the country imported around 40,000 to 45,000 used completely built units this fiscal year, against 30,832 units in eight months of the previous year.

This tremendous surge in volume is attributable to last minute orders prior to the restriction on imports, Topline says.

In November last year, the government announced that it was reducing the age limit allowed for imported used cars from five to three years. The decision came into effect on December 15, 2012.

However, this time importers had to seal deals at high exchange rates, hurting their competitiveness in relation to local cars. In November 2012, the Japanese yen was trading around Rs1.17 as compared to current rate of Rs1.08.

Strong rebound likely in second half

Given the declining imported car inventory, costly imports and cyclical phenomenon of better sales in second half of the fiscal year, the brokerage house expects strong recovery in car sales as compared to the first half of the year.

Sales of Indus Motor are likely to come to around 24,000 units in the second half, compared to 14,699 units in first half. Pak Suzuki is expected to record sales of around 40,000 units, compared to 34,324 units in 1HFY13.

With increasing volumes and softening Japanese yen and steel prices, the profitability of automobile makers is expected to grow in FY13, the report forecast.

Published in The Express Tribune, February 5^th, 2013.

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