Indus enjoying better margins
FY12 commenced on a good note for local car manufacturers, as from the very start a strong demand for cars is being seen, primarily due to the reduction in levies like GST and SED. The spike in demand stayed throughout 1HFY12, and local car makers were able to sell 72,000 cars in the period, 21 percent higher than the same period in the corresponding year. The latest result posted by Indus Motor Company reflects the demand frenzy, as the net sales of the Company in 1HFY12 stood at Rs.33 billion, 23 percent higher than the same period of last year. The bottom line also grew phenomenally as PAT stood at Rs.1,766 million in 1HFY12, higher by 95 percent compared to the same period of last year. The largest increase was seen in the sales of Hilux; far behind it was Companys flagship car Corolla which grew by 7 percent. A 36 percent decline in units sold was seen for Coure, which the Company has discontinued. The gross margin improved by 48 percent in 1HFY12. The price increases made thorough out the period were the main reason behind improved gross margin. While talking to BR Research, an industry analyst said: "The Company has raised car prices by roughly Rs.100,000 in a span of one year; this price increase is considerably high compared to the rupee depreciation and increase in steel prices in the same period." Another contributor to improved margins was the increase in sales of Hilux. Abdul Azeem, an analyst at InvestCap while talking to BR Research said: "The spike in sales of Hilux (a high margin product and a simultaneous decrease in sales of Coure (a low margin product) contributed to the improved profitability." A relatively small increase in the distribution expenses and a 24 percent increase in the other operating income, which mainly constitutes income from financial assets, improved the operating and net margins for 1HFY12. Successful price increases, higher unit sales and improved sales of high margin cars resulted in a higher EPS in 1HFY12. The general perception in the market that the ban on CNG cylinder import and lower agriculture income due to lower commodity prices (especially cotton) would slowdown the demand for cars, does not hold true, as the demand for cars remains resilient. This demand frenzy, despite the above mentioned, slowdown signals a stable performance in the coming months.