Written as on June 25, 2012
Highlights
• INDU increased prices by 2.25%-4%, impact start from FY13
• Is this prices justified with USD?
• Massive borrowing amid increasing inflation risk ahead
In line with PKR depreciation against USD, Indus Motor has decided to increase the prices of their different variants. The range of price increases is from 2.25% to 4% for and will be implemented from June 26, 2012. This price increase is likely to add much to the profitability of the company. In today's Value Seeker, we have analyzed the impact of increased in prices on Indus Motor's profits and fair value.
INDU increased prices by 2.25%-4%, impact starts from FY13
With the start of new year, Indus Motor has increased prices of its different variants by 2.25%-4%, in absolute term Rs60k to Rs75k. This is the 7th time during FY12 when the company has increased prices of its different models. With the minor change in their models the company has increased prices by ~10% during FY12 mostly on the back of appreciation in USD and JPY against PKR. As the company relays on the imported raw material from Thailand and Japan , any appreciation in these countries' currency against PKR the company faces rising cost of production. Therefore, in absence of real competition in the automobile market the auto assemblers prefer to pass on this impact on the end consumer. We believe, the positive impact on bottomline will start from FY13.
Is this prices justified with USD?
Due to ongoing IMF payments this year PKR is facing the hard time, during the last quarter of FY12TD USD appreciated by 1.47%QoQ reached to Rs94.35/USD as the country is facing USD constrain. Moreover, JPY parity remained flat against PKR at Rs1.16/YEN during 4QFY12. As far as steel prices are concerned, it increased minimal 0.3%QoQ. However, the company increased prices of its product by 2.25-4% during the last quarter. On the FY12 basis, USD appreciated by substantial 7.8%YoY similarly, JPY appreciated by massive 11.36%YoY however, steel prices declined by 8.3%YoY on the basis of these development the company increased its products prices by ~10%YoY.
Recommendation 'Buy' with Dec-12 target price of R290
The company is relying on the cost pass on formula therefore any increase in cost of production could not hurt the gross margins going forward. Currently the scrip is trading at PE multiple of 5.9x with dividend yield of 7.4% for FY13 we recommend 'Buy' for the scrip with the Dec-12 TP of Rs290/share.
POL prices expected to revise down from July 01, 2012
As per news sources, prices of petroleum, oil and lubricant products are expected to go down by up to Rs6 per litre from July 1. According to latest calculations by Oil and Gas Regulatory Authority (OGRA), petrol price may go down by Rs3 per litre, High Speed Diesel (HSD) Rs1.75 per litre, High Octane Blending Component (HOBC) Rs6 per litre, kerosene Oil Rs2 per litre and Light Speed Diesel Oil (LDO) Rs1.5 per litre. According to petroleum ministry sources the price of crude oil has been decreased by $4 per barrel in the international market during past eight days and prices are expected to reduce further. Therefore, Gov't is also considering revising oil prices as local POL prices are benchmark with international prices.
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