Dear Clients,

Indus Motor Company Limited (INDU) announced a profit after taxation of PkR2.96bn for 2QFY21 translating to EPS of PkR37.60 (up by 3x Y/Y), undershooting our estimates of PkR44.4/sh as a result of lower than anticipated margins.

– Along with the result, INDU announced an interim cash dividend of Rs25/share for the quarter, 11% higher than our estimates.

– Cumulatively, the company reported profits of PkR4.8bn for 1HFY21, up by 2x Y/Y.

– Revenue of the company increased by 2x Y/Y as the company recorded vehicle sales of 14,424 units in 2QFY21 as compared to 7,468 units in 2QFY20. Volumetric sales were up by 93% Y/Y because of Toyota Yaris model launch, resumption of sales post lockdown, and low-interest rate environment.

– In 2QFY21, the gross profit margin stood at 8.2% up by 22bps Y/Y. These margins were lower than our projections. Lower localization of Yaris was likely another factor that influenced lower reported margins.

– Administrative expenses came off by 10% Y/Y while distribution costs inched up by 3% Y/Y.

– Better profits led to an increase in WPPF and WFF charges. Cumulatively, other expenses stood at PkR247mn as opposed to PkR153mn last year.

– Other income increased by 157% Y/Y owing to greater short-term investments and cash balances compared to the same period last year. To note, the healthy order book held by the company led to greater customer advances received, increasing the cash balance.

– Effective tax rate for the quarter resided at 29% as compared to 30% in the same period last year.

– For 1HFY21, the bottom-line resided at PkR61.08/sh compared to PkR29.32/sh last year. Improved volumes have been the key driver of earnings.

– We like the stock and maintain our Positive stance on INDU and the sector. Going forward, we eye demand to remain healthy buoyed by low-interest rate environment and an overall increase in need for ownership negating concerns.

Regards,
KASB Research