INDU up and running

Amid burgeoning vehicle production costs globally, Indus Motor Company can thank its lucky stars for having Corolla in its sales portfolio.
With Corolla sales on a rage, INDU sold 11,792 cars in the quarter ending September, compared to 10,426 units sold in the same period a year earlier. Corollas sales registered a growth of 16 percent, Cuores remained flat, whereas that of Hilux cooled off by 20 percent. Higher demand for Corolla is mainly stemming from blistering GLI sales, as demand for diesel-fuelled Corolla has petered out.
Driven by this volumetric growth, INDU clocked a revenue growth of nearly 20 percent in 1QFY11. Unfortunately, stellar growth in revenue didn translate into better margins as gross profit margin shrank by 1.8 percentage points to 6.7 percent.
The main culprit behind the dull margins is the adverse currency movement, as the Japanese Yen and the dollar strengthened by an average 14 percent and 5 percent respectively against the rupee, in the first quarter of FY11, compared to the same period last year. This amid rising raw material cost and along with growing overhead cost has put the auto industry through the wringer.
Still, compared to other players in the domestic auto industry, INDU has been riding out relatively well - aided not only by robust demand for its flagship car, but mainly because Corolla has achieved the highest level of localisation in value terms.
In an effort to trim production cost and to increase the "Made-in-Pakistan" components in its cars, INDU has lately earmarked Rs1.5 billion to install a new pressing machine. This should help the firm increase its sales and give tougher competition to other players.
But while the story has been good for INDU so far, the tide could get a bit rough in the months ahead. Compared to 4QFY10, INDU car sales have declined by 26 percent in the last quarter, whereas the recent floods have added caveats that economic indicators would start slipping back in the ongoing fiscal year, signaling tepid demand for vehicles during the second and third quarters.
Additionally, growing uncertainty regarding used-car imports and threats of enforcing punitive policies are the major stumbling blocks for the auto industry in their attempt to further expand the industry size. And if thats not enough, the inclusion of spare parts in the approved list of the Afghan Transit Trade Agreement could be quite galling for an industry already battered by the influx of smuggled spare parts and under invoicing.
Therefore, it would be expedient to develop a rational, long-term and stable auto policy, at least for the next 10 years, since the Auto Industry Development Plans expiry date is getting closer, on June 30, 2012 to be precise.