It wasn’t too long ago when Indus Motors was keeping its plant shut down due to material shortages and supply chain challenges amid LCV issues, and abysmally low demand. Even then, the company was not in the financial doldrums, making enough profits to weather the storm. From that perspective, Indus Motors (PSX: INDU) doubling its earnings in the first half of FY25 with adequate demand recovery and after paying an effective tax of 39 percent during the period may not seem very hard-won. This time it is truly not prices. Indus Motors is one of the prominent beneficiaries of the volume recovery that has materialized in the automotive market in FY25; locally manufactured units sold 74 percent more than last year in 1H. Indus Motors modestly calls it a “moderate” recovery, though compared to the industry’s growth of 54 percent (for passenger cars, LCVs, and SUVs), Indus Motors is steps ahead.
For INDU, the volumetric growth translated to a revenue surge of 67 percent, culminating in earnings rising 101 percent and the company doling out a dividend payout of 60 percent to its shareholders. The average payout ratio since the first half of FY09 till date is roughly 55 percent, which means the current payout is higher and the company is signaling confidence, a message it routinely wants to send to investors. The company has grown its margins to 14 percent, which is the highest since FY18. Costs are not rising compared to previous years; in fact, the cost of goods sold per unit fell 9 percent for Indus Motors in 1HFY25 as the company meets favorable material costs. Together with no financial expenses and minimal overheads (maintained at 3% of revenue). Income earned through other investments buttressed the bottom line too—at 10 percent of revenue, other income more than covers any expenses the company is incurring. Other income is also 50 percent of before-tax earnings which points toward the company’s adequate cash and advances, also signifying robust future demand.
With interest rates sliding down, relatively more affordable car financing may lead to prospective buyers finding their way back to the showrooms, though the price tags are not “affordable” by any means. Considering the size of the current market, affordability is not exactly a motivation for car assemblers, happy and content with the existing car penetration rate. For Indus Motors, the model evidently works. Right now, new launches like the Corolla Cross are garnering plenty of interest in the market, while the Yaris is slowly becoming the most sought-after sedan given its sweet price point.
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