The Board of Directors of Indus Motor Company (INDU) is scheduled to meet on August 9, 2012 to approve the financial result for FY12. We expect the company to attain a YoY increment of 53% in profit after tax (PAT) to PKR 4,184mn (EPS: PKR 53.23) in FY12, as compared to PKR 2,743mn (EPS: PKR 34.90) in the corresponding period last year. A combination of price hikes (~8% YoY), volumetric sales growth (9% YoY) and higher other income (~12% YoY) are the primary factors behind this superior performance. We expect the company to declare a final cash dividend of PKR 12/share, taking full year dividend to PKR 20/share.
For 4QFY12 alone, we estimate Indus Motor to post PAT of PKR 1,290mn (EPS: PKR 16.41), which depicts an improvement of 14% QoQ, while on a YoY basis this figure is higher by 13% (4QFY11 EPS: PKR 14.51).
Top line to jump by 24% YoY
Top line of the company is likely to witness a YoY increase of 24% in FY12 to PKR 76.6bn, mainly on account of 9% YoY jump in volumetric sales coupled with 8% YoY improvement in vehicle prices. The flagship brand for Indus Motor, Corolla achieved a 12% YoY growth to 46k units in FY12, which was very well supported by the Hilux, where company achieved a massive 52% YoY growth to 4k units. This is enough to mitigate the steep decline of 36% to 3.8k units suffered by the Coure, ~800cc category brand of the company.
Gross margin is likely to expand by 1.9 ppt
Gross margin of the company is expected to widen by ~1.9 percentage points to 8.5% in FY12, which was hovering around 6.6% in FY11. Though PKR lost its vigor by ~9% in FY12, however rising vehicle prices coupled with declining steel prices is likely to increase gross margin in FY12.
Other income likely to improve by 12% YoY
We expect other income to reach PKR 1.7bn in FY12, a 12% YoY improvement, when compared with PKR 1.5bn earned in FY11. This is expected mainly on account of an 18% YoY improvement in Cash balances and Investments as of 9MFY12.
Our DCF based December 2012 target price for the scrip works out to PKR 265.5/share, providing a modest upside potential of 1.3% from the last closing price of PKR 262.2/share. Thus we recommend hold on the scrip.