Automobile industry is very cyclical in nature; the performance of the sector can be gauged through seasonal trends, like new models, price revisions, interest rate, and even fashion could have its own influence over what moves on the roads.
Sector play period - the time when industry fundamentals become attractive or unattractive for investors - for automobile industry began sometime in June last year, after interest rates began easing and auto demand started to pick up.
But now it is time for the stock selection period, where Indus Motors Limited (INDU), in the light of its latest first half results, becomes a natural attraction.
INDU has proved to be the most sound company in the automobile industry, as the firm was able to maintain its growth even in the face of struggling economy. This is mainly due to the product series offered which is focused towards the high-end consumer segment.
Triggered by the overwhelming response for Toyota Corollas latest model, half-yearly profits jumped eight folds enabling the firm to treat its investors with a cash dividend of Rs5 per share.
The abnormally high growth in profits stems mainly from the low base affect of last year as sales volume jumped 58 percent in the six months ended December. Moreover, an average 10 percent increase in sales price, year-on-year, coupled with lower realized steel prices boosted the firms gross margins to 8 percent.
INDUs bottom-line was also cushioned by higher other income, as advance bookings from customers led to a hike in the companys cash balance.
The firm has recently announced a further increase in product price by 3 to 5 percent for its various models. The move would allow the company to counter cost pressures, if any, hence, enabling to sustain its gross margins in the upcoming quarters.
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Indus Motor Company
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Rs (mn) 1HFY10 1HFY09 chg(%) 2QFY10 2QFY09 chg(%)
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Sales 24,079 14,438 67% 12,143 9,278 31%
COGS 22,201 13,996 59% 11,279 9,012 25%
GP 1,878 442 325% 864 266 225%
GP Margin 8% 3% 155% 7% 3% 148%
Other Income 857 232 270% 434 128 241%
Finance Cost 93 10 865% 84 8 904%
PBT 2,102 231 809% 935 173 440%
PAT 1,366 163 739% 607 115 429%
EPS (Rs) 17.38 2.07 7.72 1.46
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Source: KSE Notice