SBP restrictions, rupee devaluation hitting auto sector: Indus Motor Company

Indus Motor Company Limited (IMC), the assembler of Toyota vehicles in Pakistan, has said import restrictions imposed by the central bank and ongoing rupee depreciation are denting the country’s auto sector.

The company’s top officials disclosed the development in a corporate briefing held on November 8, 2022 to discuss its latest financial result and future outlook.

According to Arif Habib Limited (AHL), which participated in the session, the company’s management said import restrictions imposed by the State Bank of Pakistan (SBP) and the volatile exchange rates remain challenging for the auto sector.

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Officials also said the industry is bearing the burden of escalating production costs on account of the current rupee depreciation, while demand has declined due to the economic downturn, with high interest rates and augmented duties and taxes on vehicles.

They have called for the removal of import restrictions as they said that auto sector only comprises of 3% of the total import bill. The company informed that the localization rate, in terms of value of Corolla and Yaris stands at 65%, while for IMV and Fortuner it stands at 55%

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“The management foresees another quarter of manufacturing loss given import restrictions remain in place,” shared the brokerage house.

The company also said recent flood destruction along with higher inflation and low purchasing power of consumers will hurt demand of the entire auto sector in the future, said AHL.

Last month, INDU announced its financial result for Q1FY23, whereby the company posted a Profit After Tax (PAT) of Rs1,297 million, alongside earnings per share (EPS) of Rs16.5, down by 76% YoY.

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The decline in profits was mainly driven by lower sales revenue (-43% YoY), resulting in negative gross margins. Indus said lower production and frequent plant shutdowns on the back of limited imports allowed by SBP, the sales volume of CKD units went down by 52.4% YoY.

Pakistan’s auto sales declined by over 50% to 34,472 units during the first quarter (July – September) of 2022-2023, as compared to 68,897 units recorded in same period last year, data released by Pakistan Auto Manufacturers Association showed.