Indus Motors Company Limited

Indus Motors Company Limited (PSX: INDU) was incorporated in Pakistan in 1989 as a joint venture between some companies of House of Habib, Toyota Motor Corporation (TMC) and Toyota Tsusho Corporation of Japan. The company produces and markets Toyota brand vehicles in Pakistan. In passenger car segment, INDU manufactures several variants of Corolla and Yaris. In the light commercial vehicle segment, it has Hilux and in the sports utility vehicle segment, it has Fortuner. With its manufacturing facility located at Port Qasim, Karachi, the company sells its products nationwide through a robust network of 50 independent 3S dealerships across the country. The company has shown impressive growth in its production capacity which now stands at more than 280 units per day from 20 units at the time of its inception in 1993.

Pattern of Shareholding

As of June 30, 2022, INDU has an outstanding share capital of 78.6 million shares which are owned by 4192 shareholders belonging to diverse categories. Foreign investors/ companies, with an ownership of over 79 percent shares are the biggest shareholder of INDU. This category is led by overseas Pakistan investors followed by Toyota Motor Corporation and Toyota Tsusho Corporation. This shareholder category is followed by associated companies, undertakings and related parties holding 6.25 percent of INDU’s shares. General public have a stake of 5.63 percent in the company. Insurance companies hold 2.36 percent of INDU’s shares followed by Banks, DFI and NBFIs owning 2.06 percent shares. Modarba and Mutual funds represent 1.23 percent shareholding of the company. The remaining shares are held by other categories of shareholders.

Historical Performance (2018-2022)

The volumetric sales and topline of INDU have been riding an upward trajectory since 2018 except for a dip in 2020 where a global crisis was unfolded which affected almost all the sectors if the economy. In 2020, the company sold 28,837 units which were 56 percent lesser than the offtake in 2019, resultantly, the topline plunged by 45 percent year-on-year.

It is to be noted that company’s margins have been shrinking since 2018 except for a marginal uptick in 2021 which was the year when the economy was recovering from the shocks of COVID-19. INDU sold 57,731 CKD and CBU units which were 100 percent more than the sales volume of 2020. In 2021, the company introduced facelift models of Corolla, Hilux and Fortuner. Moreover, the wider acceptability of Toyota Yaris, introduced in 2020, also added to the volumetric growth. During the year, INDU also introduced the new Corolla Altis – X package. Consequently, INDU boasted a topline growth of 108 percent in 2021. GP margin for the year grew from 8.6 percent in 2020 to 9.3 percent in 2021 on the back of higher offtake and better pricing. Another factor which buttressed the bottomline was a handsome growth in other income which came on the heels of return on placements due to better fund position of the company. Despite low discount rate backdrop during 2021, the finance cost increased by 56 percent year-on-year on the back of borrowings for investment in plant and equipment and also trade and other payables during the year, however, having an equity backed capital structure, finance cost doesn’t make much difference to the bottomline. The bottomline of the company grew by 152 percent year-on-year in 2021 with NP margin clocking in at 7.16 percent as against 5.9 percent in 2020.

INDU posted a topline growth of 54 percent year-on-year in 2022 coming on the back of 31 percent growth in sales volume coupled with increased pricing. However, high cost of production on account of inflation, freight charges and depreciation of Pak Rupee against USD and Yen didn’t bode well for the company’s margins. GP margin for the year stood at 6.7 percent. Running royalty paid to Toyota Motor Corporation and Toyota Daihatsu Engineering and Manufacturing Company Limited which comprises an enormous portion of INDU’s cost of sales almost doubled during the year. Other income grew on account of return on financial and non-financial assets amidst high discount rate. The company was able to reduce its finance cost despite the increase in discount rate. This was possible as the company finances its operations mainly through equity and working capital making finance cost proportionally negligible. The bottomline for 2022 increased by 23 percent year-on-year, however, NP margin dropped to 5.7 percent from 7.16 percent in the previous year.

Recent Performance (1HFY23)

As against the topline and volumetric growth achieved by the company in almost all the years under consideration, 2023 appears to be telling the same tale as of 2020. The topline shrank by 36 percent year-on-year in 1HFY23. With higher selling prices, the topline plunge is sure to be the result of low volumetric sales. During the period, there was suppressed demand from the customers owing to slowdown of economic activity and high inflationary pressure as well as restricted production volumes by the company owing to the restrictions on the import of CKD units.

For the very first time since 2017, the company has recorded a gross loss of Rs. 2848 million in 1HFY23 as against the gross profit of Rs.12,336 in the similar period last year. Low sales volume and high cost of production especially amidst currency devaluation couldn’t be outweighed by the price hike and resulted in gross loss. Quite predictably, other income came to rescue the bottomline which although dropped by 74 percent year-on-year, yet managed to post the net profit Rs.2628 million.

The NP margin for 1HFY23 stood at 3 percent as against 7.5 percent in the same period last year.

Future Outlook

The volumetric sales of the company are expected to plummet further with margins coming under severe pressure as automobile companies are scaling down or suspending their operation owing to restrictions on the import of CKD units. Moreover, there is a sluggish demand from local consumers owing to severe economic downturn. Depreciation of Pak Rupee has forced the auto companies to pass on the cost to the consumers who already have low purchasing power amidst inflationary wave.