KARACHI: Pakistan’s auto assembling sector has been in the spotlight at the Pakistan Stock Exchange (PSX) outperforming the KSE 100 Index by 12% since Pak Suzuki (PSMC) announced its voluntary delisting on October 12, 2023.
According to an analyst at Sherman Securities, this has created excitement among investors as this delisting will unlock fair valuation for all other companies in the auto sector, which are trading below historical book values due to economic slowdown, peak interest rates and import curbs.
However, most of the auto assemblers are facing frequent shutdowns due to unavailability of auto parts or CKDs (Completely Knock Down Units) amid restricted imports.
This is evident from the recent import numbers released by PBS (Pakistan Bureau of Statistics) showing a consistent declining trend in CKD imports since the last few months. Alarmingly, combined CKD imports of both cars and trucks fell to the lowest level of US$24 million in Oct’ 23, down 66% MoM.
Car CKD imports dropped to a negligible US$22 million, indicating subdued production in Nov and Dec. Motor car CKD imports clocked in at US$22 million in Oct’23 vs US$54 million in Sep’23, down 58% MoM. This is the lowest monthly CKD imports recorded by the country, which is even lower than the monthly average seen during COVID times. Hence, it is likely that car production may further reduce during the next couple of months.
Interestingly, the average monthly CKD imports during FY22 stood highest at around US$142 million, which has now bottomed out to around US$22 million in Oct’23. The huge decline in auto parts import is due to 1) the government’s renewed policy to restrict imports of auto parts aiming to control CAD by limiting LCs 2) restriction by SBP and peak interest rates, which discouraged auto financing (showing consistent decline during the last 16 months) 3) high car prices and inflation, which eroded purchasing power.
Bus and truck CKD imports plunged by 92% MoM. Bus and Truck CKD imports witnessed a sharp decline to US$1.5 million compared to US$18 million in Sep’23, dropping by 92% MoM. Thus, the truck industry faced the major brunt of lower demand and import restrictions compared to the car industry.
Like the car industry, the average monthly CKD import, which reached the peak level of US$55 million during FY22, has now reduced to a negligible US$1.5 million. The huge decline could be due to economic slowdown and lower purchasing power.
Car and bus sales may remain subdued in the next couple of months. If this trend in CKD imports continues, we might see car sales plunge further in Nov and Dec as well. Just to recall, Auto sales during Oct’23 fell to a three-month low level of 6k units.
As far as the truck industry is concerned, we may see additional demand coming from the government’s strict implementation of the Axel load regime. Transporters will now be following the government’s prescribed load limit according to the axles of the vehicle (for example, 3 axles can load 27.5 tons). Currently, transporters load twice the prescribed limit.
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