Although vehicle sales have shown signs of a recovery since the beginning of the fiscal year, growing some 82% year-on-year (y-o-y) in the first six months of FY2013/14, to 63,325 units, auto production is still struggling to gain traction, in line with our earlier forecasts.
However, the near-term uptick in commercial vehicle (CV) sales has seen a concurrent boost in production. CV production grew 74.1% y-o-y in December, to hit 1,429 units, bringing output for the first six months of FY2013/14 to 10,872 units. This is well-placed to meet our FY2013/14 CV production growth forecast of 7.1%, to 19,700 units and we are happy to maintain it for now.
The positive momentum in Pakistani auto sales, a trend we initially highlighted in August 2013 (see 'Sales To Recover But Production Faces Challenges', August 29 2013), continued unabated towards the tail end of 2013. According to the Pakistan Automotive Manufacturers Association (PAMA), vehicle sales in December 2013 rose 16.2% y-o-y, to 9,967 units. This increase marks the sixth consecutive month of auto sales registering a positive y-o-y increase.
The gain in sales was led by all segments, with both the passenger car segment and the CV segment enjoying growth. While vehicle sales have made a strong start in FY2013/14 (June-July), we caution that they will have to face a higher base in H2FY2013/14, which will slow down growth rates.
Manufacturers Reaping Gains
Additionally, margins of local assemblers have improved in the past few months. From October-December 2013, the Pakistani rupee has appreciated by about 9% against the Japanese yen. With domestic manufacturers importing most of their assembly parts and kits from Japan, this strength in their local currency improves their margins.
Upcoming Industry Plan Will Chart Direction
We believe the upcoming Auto Industry Development Plan 2, which is set to be unveiled by the government on January 9 2014, will be crucial in determining the direction of the...