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 is engaged in the assembling, progressive manufacturing and marketing of Toyota and Daihatsu brand vehicles in Pakistan. INDU also acts as the sole distributor of these brands.

Pattern of Shareholding

As of June 30, 2024, INDU has a total of 78.6 million shares outstanding which are owned by 4192 shareholders. Foreign investors/companies have the majority stake of 77.54 percent in the company followed by associated companies, undertakings and related parties holding 6.25 percent of INDU’s shares. Insurance companies account for 5.65 percent of the company’s shares while general public hold 5.41 percent shares. Around 2.28 percent of INDU’s shares are held by insurance companies. The remaining shares are held by other categories of shareholders.

Historical Performance (2019-2024)

INDU’s topline slid thrice over the period under consideration i.e. in 2020, 2023 and 2024 which was the consequence of shrinkage in the company’s volumes. Conversely, its bottomline plunged in 2019, 2020 and 2023. The company’s margins which drastically fell until 2020 rebounded in 2021. The subsequent two years registered decline in margins except for a slight uptick in operating margin in 2023. In 2024, the margins considerably improved. The detailed performance review of the period under consideration is given below.

In 2019, INDU’s topline inched up by 13.1 percent year-on-year. This came on the back of 3.45 percent uptick in the company’s sales volumes of CKD and CBU units which clocked in at 66,211 units in 2019.This was mainly due to higher sales volume of Toyota Corolla. Cost of sales multiplied by 19.83 percent in 2019 on account of higher input cost and Pak Rupee depreciation. This resulted in 19.65 percent year-on-year erosion in the company’s gross profit in 2019 with GP margin falling down to 12.15 percent from GP margin of 17.10 percent posted in 2018. Distribution expense grew by 9.35 percent in 2019 on account of increased advertising and sales promotion budget, warranty claims as well as pre-delivery inspection and service charges incurred during the year. Administrative expense plummeted by 7.48 percent in 2019 due to lower legal and professional charges as well as curtailed payroll expense incurred during the year. Lesser payroll expense was despite the fact that the company expanded its workforce from 3266 employees in 2018 to 3349 employees in 2019. The company made lesser provisioning for WWF and WPPF in 2019 due to a decline in profitability. Other income strengthened by 10.41 percent in 2019 which was primarily backed by hefty gain recorded on sale of investment in Market Treasury bills, Pakistan Investment bonds and mutual funds. Write-back of liabilities no longer payable also contributed in driving up other income in 2019. INDU recorded 17.49 percent thinner operating profit in 2019 with OP margin diving down to 12.05 percent from OP margin of 16.52 percent recorded in 2018. The company was able to cut down its finance cost by 16.25 percent in 2019 due to lesser bank charges incurred during the year. The company had no short-term borrowings on its books until 2019; however, it borrowed Rs.80.54 million in 2019 as long-term loan for renewable energy projects. INDU’s net profit tapered off by 12.77 percent in 2019 to clock in at Rs.13715 million with EPS of Rs.174.49 versus EPS of Rs.200.66 recorded in 2018. NP margin also fell from 11.25 percent in 2018 to 8.68 percent in 2019.

In 2020, INDU’s topline slumped by 45.46 percent. This was the result of 56.45 percent drop in the company’s sales volume of CKD and CBU units which stood at 28,837 units in 2020. This was due to lackluster economic activity on account of COVID-19. Imposition of taxes and duties also led to demand contraction during the year. Cost of sales dropped by 43.29 percent in 2020, resulting in 61.17 percent decline in gross profit. GP margin also plunged to 8.65 percent in 2020. Distribution expense ticked up by 4.63 percent in 2020 primarily due to increased advertising and sales promotion for the launch of Toyota Yaris. While the determined launch plan was cancelled due to COVID-19, it was effectively managed online and received extensive coverage on electronic media. Administrative expense ticked down by 1.77 percent in 2020 due to considerable decline in staff training expense incurred during the year. Profit related provisioning further tumbled by 83.5 percent in 2020. Other income also shrank by 25.59 percent in 2020 particularly due to lower return on bank deposits and treasury bills, lesser gain on trade of Pakistan Investment Bonds and considerably lower gain on redemption of investments in mutual funds. INDU registered 61.28 percent thinner operating profit in 2020 with OP margin clocking in at 8.56 percent. During the year, the company obtained long-term loan under SBP re-finance facility for the payment of wages and salaries. This took the outstanding loan to Rs.479.326 million as of June 30, 2020. Finance cost escalated by 28.36 percent in 2020 which was the consequence of higher bank charges and increased mark-up on long-term loans. Net profit tumbled by 62.95 percent in 2020 to clock in at Rs.5082 million with EPS of Rs.64.66 and NP margin of 5.9 percent.

INDU sold 57,731 CKD and CBU units in 2021 which were 100.20 percent more than the sales volume recorded 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 107.92 percent in 2021. GP margin for the year grew to 9.3 percent in 2021 on the back of higher offtake and better pricing. In absolute terms, gross profit enlarged by 123.51 percent in 2021. Distribution expense inched up by 10.21 percent in 2021 due to higher warranty claims, late delivery charges, pre-delivery inspection and service charges and higher salaries. Administrative expense was 5.78 percent higher in 2021 when compared to the previous year due to elevated payroll expense as the company expanded its workforce from 2855 employees in 2020 to 2943 employees in 2021. INDU booked 218.97 percent higher provisioning for WWF and WPPF in 2021 versus the previous year due to profitability growth. Handsome growth of 74 percent in other income recorded in 2021 came on the heels of return on placements due to better fund position of the company. INDU’s operating profit picked up by 148.65 percent in 2021 with OP margin jumping up to 10.23 percent. Despite low discount rate backdrop in 2021, finance cost increased by 55.81 percent year-on-year on the back of increased borrowings for investment in plant and equipment, higher bank charges paid during the year as well as unwinding of interest on GIDC payable. INDU’s long-term loan stood at Rs.589.837 million as of June 30, 2021. Bottomline grew by 152.42 percent year-on-year in 2021 to clock in at Rs.12,828 million with EPS of Rs.163.21 and NP margin of 7.16 percent.

INDU posted topline growth of 53.77 percent year-on-year in 2022. This came on the back of 30.97 percent growth in sales volume which clocked in at 75,611 units in 2021. Increased pricing also drove the topline up in 2021. However, high cost of sales 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 6.68 percent despite the fact that gross profit grew by 10.51 percent in absolute terms. Running royalty paid to Toyota Motor Corporation and Toyota Daihatsu Engineering and Manufacturing Company Limited which formed an enormous portion of INDU’s cost of sales almost doubled during the year.Distribution expense escalated by 31.19 percent in 2022 on account of elevated warranty claims, higher salaries, increased advertising promotion budget, pre-delivery inspection and delivery charges and late delivery charges incurred during the year. 51.47 percent higher administrative expense incurred during the year was the result of a surge in payroll expense in 2022. This was due to inflationary pressure and workforce enhancement to 3139 employees in 2022. Profit related provisioning increased to 68.11 percent in 2022. Other income grew by 131.87 percent in 2022 on account of return on placements on account of significant increase in advances from customers. INDU’s other income was big enough to absorb its operating expenses and culminated into 39.46 percent growth in its operating profit in 2022. OP margin for the year stood at 9.28 percent, which although was lesser than the OP margin recorded in the previous year, however, was considerably bigger than the GP margin of 2022. Finance cost dipped by 14.93 percent in 2022 due to lesser bank charges and payment of long-term loans which stood at Rs.279.878 million as of June 30, 2022. INDU recorded 23.19 percent increase in its net profit which stood at Rs.15803 million in 2022 with EPS of Rs.201.04 and NP margin of 5.74 percent.

After two consecutive years of increase in sales volumes and net revenues, INDU recorded 35.5 percent drop in its net revenues in 2023. This was the consequence of 58.2 percent decline in the company’s sales volume which stood at 31,602 units in 2023. This was due to higher duties and taxes imposed by the government on the auto sector, import restrictions which hampered the production activities and demand destruction on account of high inflation and shrunken purchasing power of consumers. Cost of sales slid by 33.96 percent in 2023, resulting in 56.91 percent contraction in gross profit. GP margin slipped to 4.46 percent in 2023. 20.4 percent plunge in distribution expense in 2023 was due to no late delivery charges incurred during the year coupled with a downtick in salaries expense, warranty claims and pre-delivery inspection and services charges incurred during the year. Administrative expense inched up by 2.8 percent in 2023 due to higher rent, rates and taxes coupled with higher staff training expense incurred during the year. In 2023, INDU squeezed its workforce to 3129 employees due to idle plant capacity and abridged demand. The company booked 45.33 percent lesser provisioning for WWF and WPPF in 2023 due to a slide in profitability. Other income grew by 9.61 percent in 2023 due to higher return on investment on account of higher interest rate. INDU recorded 33.75 percent feeble operating profit in 2023, however, OP margin showed slight improvement to clock in at 9.53 percent – thanks to robust other income. Finance cost grew by 23.44 percent in 2023 due to unwinding of long-term loans to employees and an uptick in bank charges. The company’s long-term loans clocked in at Rs. 239.895 million as of June 30, 2023. Net profit weakened by 38.84 percent to clock in at Rs.9664.43 million in 2023 with EPS of Rs.122.96 and NP margin of 5.44 percent.

INDU’s topline further shrank by 14.2 percent in 2024. Sales volume of CKD and CBU units fell by 33.35 percent to clock in at 21063 units – the lowest sales volume recorded by the company over the period under consideration. This was due to surge in the import of used cars which stood at 38,561 units in 2024, up 435 percent year-on-year. Increased localization, strengthening of Pak Rupee against USD and JPY, cost control measures and improved sales mix owing to the introduction of its HEV Corolla Cross in December 2023 resulted in 144.38 percent enhancement in INDU’s gross profit in 2024 with GP margin considerably improving to clock in at 12.71 percent. Distribution expense escalated by 277.77 percent in 2024 due to paramount hike in warranty claims, elevated development expenditure, increase in salaries expense and higher advertising and promotion budget owing to the launch of Corolla Cross. Administrative expense surged by 15.86 percent in 2024 due to higher payroll expense incurred during the year owing to inflationary pressure. Reduced demand led the company to squeeze its workforce to 2579 employees in 2024. INDU booked 73.21 percent higher profit related provisioning in 2024. Other income ticked down by 3.69 percent in 2024, however, was still enormous enough to absorb the company operating expenses. This resulted in 38.73 percent stronger operating profit in 2024 with OP margin climbing up to 15.41 percent. Finance cost mounted by 21.1 percent in 2024 due to higher bank charges. INDU’s long-term loans slid to Rs.199.912 million as of June 30, 2024. Changes in sales mix, localization, stability in currency and vigorous other income enabled the company to record 55.96 percent improved net profit to the tune of Rs.15072.43 million with EPS of Rs.191.76 and NP margin of 9.88 percent.

Future Outlook

The volumetric sales of the company are expected to rebound in FY25 after the launch of its hybrid SUV as the transition towards HEV might be slow but certain. For the assembly of hybrid vehicles, the company has invested over Rs. 3 billion and plans to invest more to introduce new models within HEV range. Moreover, downward journey of discount rate and near-term stability in the local economy also augur well for the auto industry volumes.