INDU: Profits in a pandemic!

Indus Motor (PSX: INDU) is no longer in lockdown—whether it is from the government instated shutters-down on factories kind that took effect in April last year or the onset of economic downturn before that which had left vehicle inventories piling up. As far as the nine-month financials are concerned, Indus Motors is good; for investors: the company is stellar.

Interestingly, the growth in company’s profits that are up 1.6x mirror the growth in the company’s sold units that it assembled during the period. What has facilitated that are multiple factors. For one, the company’s topline grew (1.7x) by much more owing to better pricing (estimated revenue per ton sold was up 3%) than last year and strong growth in high-priced units with a favourable product mix.

Cheaper auto financing in the country has facilitated larger sales by individuals and corporates that have utilized the lower borrowing rates scenario and to an extent, bypassed the higher cost affect on the purchased vehicle brought on by frequent price hikes since 2018. Rupee appreciation of about 4.4 percent should have brought costs of production down but did no such thing—costs per ton sold grew 5 percent likely because of higher container freight costs on imports of parts/CKD kits and CBUs.

Yaris’ arrival in the midst of the covid-19 may have turned some heads but it seems the company bet on the right horse as volumes have sustained quite confidently. Fortuner and Hilux have grown tremendously too. A tighter lid on overheads—now 2 percent compared to 4 percent in 9MFY20—also bolstered the income statement.

What really greased the bottom-line of the company however was ‘other income’ which comprises of returns on bank deposits, T-Bills, PIBs etc. In 9MFY21, that share in before-tax profit stood at 33 percent (it was 36% in 1H), same as last year, which is a pretty big chunk added to period earnings. Negligible debt on the balance sheet and low interest rates shrank the finance costs as share of revenue even further to 0.06 percent (0.07% in 9MFY20) which is not even a drop in the bucket.

Meanwhile, the company’s dividend payout of 63 percent compared to 36 percent in 9MFY20 signal confidence in future earnings.