The auto shares overreacted upon the decision of the government to allow import of reconditioned cars because at present only a committee has been constituted to finalise measures to import the used cars.
Pak Suzuki declined by Rs 7.90 to Rs 150.10, Indus Motor by Rs 5.85 to Rs 112.10, Honda Atlas Rs 3.80 to Rs 72.80, Ghandhara Diesel by Rs 2.55 to Rs 49.35 and Atlas Honda by Re 1.00 to Rs 136.
Tractor shares also followed the trend and went down drastically in the range of Rs 4.95 to Rs 6.95.
Fauzan Abdullah research analyst from KASB Securities said that the stocks dropped as a knee jerk reaction. However, study showed that nothing much has changed.
The Cabinet effectively delayed their decision for a few months while the committee comes up with recommendations. At the same time, we expect the committee to also recommend very strict conditions for the import of used cars.
Previously, a suggestion was made that only reconditioned cars that are reconditioned by their original manufacturers will be allowed in the case of duty reductions, depending on the scale of the reduction, competition may increase in the small car sector. However, it is unlikely to have any major impact on the assemblers, since the government will also allow a reduction in CKD duties as well.
Thus "we recommend that investors not panic at the announcement, since the assemblers are still fundamentally strong companies", he said.
A leading trader said that the market was in the want of some negative news to drag the index down, which was overheated since long.
The market men only figured the negative side of the decision, rather the reduction in completely knocked down kit would boost their revenues.
The import of second hand cars will reduce the vehicle prices and as the local manufacturers are maintaining quality products, cheaper price structure would ultimately boost their sales and revenues in long-term.
Abdullah said by allowing the import of new and used cars, the government has taken a step that should ease the excess demand situation that is apparent in the industry. This situation is exceptionally bad in the market for small cars.
Thus by allowing these imports, we should see the supplysituation improve and premiums fall drastically, which is to the benefit of the consumers. However, the point of interest will be the conditions under which the imports will be allowed, which will be based on the recommendations of the committee that is to be set up shortly.
Currently, CKD kits are imported by the assemblers at a flat rate of 35 percent irrespective of engine size, whilst fully built up 800cc cars or less cars are imported under 75 percent duty.
By reducing these rates, the government allows the manufacturers to lower their prices without any impact on their margins, whilst at the same time it ensures that imported cars are more economical for the low-end purchaser.
For example, the Chevrolet Exclusive costs Rs 575,000 and on conservative estimates the duty is halved to 37.5 percent from 75 percent, the car will cost Rs 451,786, which is a much more reasonable and competitive price for an 800cc vehicle. "The end consumer will benefit the most".
Comments
Comments are closed.