Auto sector gains after rupee appreciation, data shows

Outperforms the broader market by 6.2 per cent, states BMA Research.

KARACHI: With the Japanese yen weakening and Pakistani rupee appreciating, the auto sector at the Karachi Stock Exchange (KSE) gained 5.5% over the past 13 trading sessions, outperforming the broader market by 6.2%, according to a report published by BMA Research on Wednesday.

For the local auto industry, calendar year 2013 (CY13) was characterised by weak performance of the yen against the dollar and its consequent trickle-down impact against the rupee.

In this regard, the yen depreciated by 12% year-on-year (YoY) against the rupee in CY13. While looking into CY14, we expect persistent yen’s weakness on the back of continued monetary stimulus by the Bank of Japan (BoJ) to revive its economy, the report added.

The depreciation of the yen combined with the strengthening rupee is the likely theme to play out for the local auto industry this year (CY14). In this regard, the recent currency movements are estimated to have an astounding 87% incremental impact on industry earnings (pass-through benefits aside). In response to the price movements, however, two players (Indus Motor and Honda Atlas cars) have already reduced prices by 0.5%-3.0%, mitigating the currency benefit by 15%. These positive developments within the auto industry have already been priced in by the market to an extent.

Price cut: just a feel-good factor

Industry officials say that the recent price cuts will just have a feel-good effect on the market, and that it is not going to give any substantial push to car sales in coming months.

“However, considering the very small size of the auto industry in Pakistan, it is not going to bring any big change in the car sales,” said an official of Honda Atlas Cars.

Though the recent rupee appreciation has forced carmakers to reduce their prices, company officials are quick to remind the market that any substantial future depreciation of the rupee may again result in the increase in car prices.

“Rupee stability in the coming months will be the single most important factor that determines the stability of car prices in the country,” the Honda official added.

While Honda is still buoyant owing to its new models of ‘Civic’ and ‘City’ that it launched in 2012 and 2013, Indus Motor is banking on its upcoming Toyota Corolla model that it may launch in the next couple of months.

Published in The Express Tribune, March 27^th, 2014.

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