SBP measures to curtail import bill may hurt automobile sales: analysts
KARACHI: The central bank has taken several measures to curtail the burgeoning import bill of the country by imposing certain restrictions on various sectors, including the auto financing.
A report of the Topline Securities said car sales clocked-in at 250k units in FY21, which is likely to grow 10 per cent in FY22 to 276k and 2 per cent to 283k units in FY23, lower from the previous estimates of 300k units and 330k units in FY22 and FY23, respectively, due to the demand curtailment measures taken by the State Bank of Pakistan.
Auto financing plays a key role in determining the sales, as financing contributes around 30 per cent to 40 per cent of the total sales in the country.
Moreover, continuous decline in the rupee value against the dollar could lead to further increase in cost pressures and may lead to higher car prices, which could be detrimental for the sector margins and sales.
With higher-than-expected currency devaluation and the recent inability of the sector to pass on the cost pressures, the margins are likely to get impacted. The rupee has depreciated 9 per cent in the last four months.
Pakistan Suzuki Motors Company (PSMC) has noted, “Given the forthcoming situation because of the policies of the SBP, our sales may grow 8 per cent on an average during 2022/24 versus our previous assumption of 14 per cent.”
The company operates in the lower segment category of cars with engine capacity of 1000cc or lower with products priced between Rs1.2 million to Rs2 million.
In this product category, the customers are highly price sensitive and their purchase behaviour is also dependent upon the overall purchasing power and macroeconomic situation in the country.
Honda Atlas Car (HCAR), one of the leading automobile manufacturers in Pakistan, in its analysis reported that around 45 per cent to 48 per cent of its total car sales comes from auto financing, as their cars are mostly popular in the urban areas.
The car sales would be hugely impacted by the measures taken by the central bank with the conditions such as raising the down-payment to 30 per cent from the existing 15 per cent, limiting the outstanding auto loans to Rs3 million at any given point.
The company operates in 1200cc and + engine capacity cars and its locally-assembled cars are priced in the range of Rs2.6 million to Rs4.7 million.
“Owing to a lower sales forecast and lower gross margins, we lower our earnings forecast by 22 per cent,” according to the analysis.
Indus Motor, a big car manufacturer in Pakistan, in a statement noted, “With all the recent measures taken by [the] SBP to curb aggregate demand and rising auto financing, the company is likely to be less affected than its peers, as around 25 per cent to 30 per cent of the company sales come from auto financing, compared with the industry average of 35 per cent to 40 per cent. This is due to the fact that a major portion of the company sales (up to 50 per cent of sales) come from the rural areas where customers prefer to buy cars on cash.”
The recent measures taken by the central bank are a complete shift from the government policy of tax incentives for the car manufacturing sector, announced in the Federal Budget 2021/22 for keeping a check on car prices and boosting demand for the automobiles.
Analysts said the new restrictions will affect the demand for big cars such as Honda Civic, Toyota Corolla, Hyundai Elantra, Sonata and the crossovers such as Kia Sportage, Hyundai Tucson, MG Motors’ MG HS and Toyota Fortuner may see their sales go down.
Pakistan witnessed record sales in FY18 when the industry sold 329,000 units (+21 per cent YoY) when Kibor averaged 6.35 per cent and GDP growth stood over 5.5 per cent.
In FY19 and FY20, it dropped to 276k units and 125k units due to the economic slowdown and the advent of the Covid-19. After ease in the lockdowns, it posted strong recovery in FY21, growing 100 per cent to 250k units.
The car imports also form a major portion of Pakistan’s import bill in the form of Completely Built Unit (CBU) and Completely Knock-down Units (CKD). Pakistan’s total auto imports surged 154 per cent YoY to $668 million in the two months of FY22.
In FY21, it increased 93 per cent YoY to $3 billion. “Looking at the trend, we expect the total auto imports to cross $3.5 billion in FY22, according to the report.
In another move, the State Bank of Pakistan restricted the banks from providing auto financing loans on imported vehicles such as Mira, Days, Vitz and Aqua.
The central bank tightened the regulatory requirements for loans for domestically-assembled cars of more than 1000cc; however, the locally-assembled electric vehicles, hybrids and cars under 1000cc such as Suzuki Alto, Cultus, Wagon R, Kia Picanto and United Bravo are exempted from the new regulations to encourage environment-friendly technology and facilitate the middle-income car buyers.
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