The unit sales of locally assembled automobile are expected to face a double-digit decline on YoY basis in FY19, due to non-filers restriction and varying microeconomic landscape. According to Topline Research, the unit sales of local OEMs is likely to face 11 percent decline YoY in FY19, due to changing macroeconomic landscape and impact of regulatory change.
Despite deteriorating macroeconomic environment and law restricting non-filers from purchasing cars, the auto sector witnesses on average 28% Year to Date (YTD) decline in auto stocks as compared to 5% YTD rise in KSE-100 index, which indicates that market has priced in most of the unfavorable sector outlook. The Topline anticipated GDP growth at 4-4.5% for FY19 as compared to 5.8% in FY18 as fiscal austerity measures, rupee depreciation and monetary tightening are expected to curtail overall aggregate demand. Moreover, the slowdown in auto financing due to unexpected interest rate hike, which is likely to reach the policy rate to 8.5% by this December.
It stated that outstanding car financing declined in June 2018, which was a first such fall after a period of 18 months, pointing towards a potential slowdown; adding that the restriction on non-filers in budget FY18-19 from purchasing cars was estimated to lead to a decline in volumes next fiscal year as approximately 40% of auto clients were non-filers. However, the impact on demand will vary across companies due to differences in their respective client base.
It said that the Compound Annual Growth Rate (CAGR) of 10% to 2% and downward revision of gross margin from on average estimate of 12% to 9% during the same period owing to PKR depreciation, volatility in steel prices, delayed roll out of new models, high interest rates and regulatory changes.