AKD Quotidian about — Auto Sector: July’13 Sales Volumes
Karachi, August 15, 2013 (PPI-OT): According to latest data released by PAMA, Jul’13 industry volumes (Cars+LCVs) declined by 23%MoM to 10,579 units while a 79%MoM decline was recorded in tractor sales with total volumes of 1,302 units.
According to AKD Securities on a YoY basis however, auto sales were higher by 1.4% primarily driven by HCAR. In AKD Securities views, the sequential drop in sales volumes may be attributed to the impact of recent FY14 Budget directives e.g. duty reduction on hybrid vehicles and increase in advance tax on registration of new cars.
Drilling down, PSMC sold 5,697 units in Jul’13, up by 1.5%YoY but lower by 18%MoM with only the Cultus variant displaying sequential growth. Similarly, INDU’s sales of 2,894 units were down by 6.3%YoY/32%MoM. HCAR was the relative contrarian outperformer where although its sales were lower by 1 5%MoM, YoY growth came in at 18.9%.
The latter is largely attributable to sales of new model of Civic (+58%Y0Y). On the tractors front, 85%MoM and 62%MoM declines were recorded by MTL and AGTL to 724 units and 578 units, respectively, due to the post Budget scenario.
These sales figures are lower by 36%YoY and 66%YoY, respectively. From an investment perspective, the listed auto sector has gained 53%CYTD, outperforming the broader market by 13% in the process. That said, AKD Securities retains preference for PSMC (TP: PkR178/share) where upcoming 2QCYI3 results may excite considering the company will likely record a one-off gain on sale of land.
Cotton Update: August 2013
USDA released its cotton report this week whereby Chinese production estimates for MY13/14 (MY: Marketing year starting August 1st and ending July 31st) have been cut by lmn bales to 33mn bales, a three year low.
While inventory level estimates have been revised upwards, the total cut of 1 .6mn bales from a month earlier leads to lower global inventory levels in MV13/14E. With the largest cut coming from China and the state continuing its cotton support price policy, AKD Securities are likely to witness an increase in import of cotton and cotton yarn by China at least in the near-term.
This will likely lead to decreasing inventory levels in the rest of the world. Going forward, optimism about an economic recovery in the EU as the bloc posts the first positive GDP growth in seven quarters, coupled with a cut in global cotton production forecasts, is likely to fuel another rally in cotton prices. Consequently, AKD Securities may also witness a rally in local cotton prices particularly if flooding in Pakistan hurts cotton crops significantly.
With textile mills such as NCL and NML that were stocked up on cotton in 1HFYI3 running out of cheaper cotton inventory, profitability margins are likely to be determined by timing of purchase of inventory and subsequent cotton price movement, particularly for spinning companies. At current levels AKD Securities TP of PkR1 31/share for NML offers 25% upside while AKD Securities TP of PkR8llshare for NCL implies 22% upside.
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