Karachi Stock Exchange: Indus Motor Result preview FY13

Indus Motor Company Limited (INDU) has scheduled its board meeting on August 27, 2013 to announce its FY13 results in Karachi Stock Exchange. In FY13, the company is expected to post a significant decline in its bottomline. In today's Value Seeker we present our result preview for the period of FY13 coupled with our recommendation and outlook on the same.

PAT to post 39%YoY decline in FY13

During FY13, the company is expected to post a massive decline of 39%YoY in its bottom line to Rs2,620mn as compared to Rs4,303mn in the same period last year. This massive decline in bottom line is expected to be led by an enormous fall in net sales by 19%YoY to Rs62.5bn as volumetric sales of the company are expected to register a decline of 32%YoY to 37.2k units in FY13. Similarly, other income is also anticipated to register a massive decline of 44%YoY to Rs992mn due to reduction in cash balance of the company which is linked with the advances from customers in the form of advance booking. With these results we expect the company to announce a cash dividend of Rs12/share. the company already having announced Rs10/share dividend, therefore on cumulative basis Rs22/share is expected for the whole year denoting payout ratio of 70%. During the same period last year the company announced a cash dividend of Rs32.0/ share with payout ratio of 58%

With the decline in profitability, gross margins are expected to be slightly lower by 1.1% to 7.42% as compared to 8.53% during the same period last year.

Recommend 'Hold' with Dec-13 TP of Rs342 per share

The age limit of imported used cars reduced to 3 years and low interest rate scenario are both expected to be favorable factors for the demand of automobiles in Pakistan. Moreover, depreciating JPY against PKR is expected to add further positivity which is likely to keep the cost at low levels. However, flood like situation in Sindh and Punjab could impact the farmer's income in FY14 thus slightly lower demand is expected in the current quarter in such areas. Currently the scrip is trading at a PE multiple of 8.6x with dividend yield of 8.2% on FY14 earning estimates. We recommend 'Hold' on the scrip with the Dec-13 TP of Rs342/share.