Indus Toyota expands capacity, Price hike likely

May 15, 2021

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Indus Motor Company Limited (INDU) recently held online analyst Briefing to discuss the financial results and discuss the company’s future plans

As a reminder, the company has announced net income of PKR 8.4 billion in 9MFY21 (EPS: PKR107.07) compared to a profit of PKR 4.98 billion (EPS: PKR 63.4), marking a ~69% rise as compared to same period lasts year.

The sudden increase in profitability for INDU is mainly due to higher sales volume and an increase in other revenues due to the improvement in the company’s cash position.

Sales volumes increased across all categories, mainly due to demand uptick post lock down and lower interest rates in the period under review which led to increased car financing. During the period, INDU received an outstanding response to launch of its Toyota Yaris.

However, Cost of Goods Sold increased to 77% year-on-year, mainly due to higher global steel prices and increased Supply Chain/Freight charges, weakening the impact of the rupee’s appreciation, resulting in a decrease in gross profit to 8% from previous level of 10%.

INDU Management has signalled that if global steel prices do not stabilize, the company may raise vehicle prices to cover costs.

The company also introduced a new face lift version of Fortuner and Hilux. Management said the delivery time would be around 4 months due to strong demand.

Capacity Expansion

In order to cope up with the increased demand, INDU is currently working in double shifts. INDU has already announced that its total capacity has been expanded from its current capacity of 65,000 units to 80,000 units a year as it has incurred capital expenditure of estimated ~PKR 5 billion. This increased capacity was expected to come online in September-2020, however it was delayed due to Pandemic situation

Competition to slow down Yaris Sale

The launch of the new Honda City is likely to reduce Toyota Yaris Sales. Currently, Yaris accounts for more than half of its Unit sales. However, INDU is expected to lead the segment with its delivery times of 1-2 months, while New Honda City is expected to have lead delivery time of 4-5 months. Management of Indus Motors believe that this is expected to be in favour of Toyota Yaris.

The management of Toyota Indus mentioned that Supply Chin disruptions are in control now. They mentioned that the company faced delivery delays from November-2020 to February-2021,However the operations team of the company managed the deliveries without any significant delays. Moreover, global semiconductor shortage has not had a major impact on the company and is being managed satisfactorily.

Regarding a Subsidy/Incentive package for the production of hybrid vehicles, such as those involved in electric vehicles policy, the auto industry is currently in talks with the government. INDU also made recommendations for future automotive policy, which includes the abolition of federal taxes (FED) and additional duties(AD) to lift the automotive market.

Regarding growth in the automotive market, management estimates that it will easily increase to 300,000 units by the end of FY2022. The demand is likely to be evenly across different Players in the country.