KARACHI, Oct 15 (Focus Pakistan) - Pakistan auto sector profits face a sharp quarterly earnings decline, Topline Securities said in an earnings preview. Lower sales volumes, the loss of one-off gains and a higher tax rate all weigh on the outlook.
Topline expects the companies it covers to earn 12.6 billion rupees in the July-September quarter. That would be 35% less than in April-June and barely above the 12.5 billion rupees they made a year earlier.
Revenue follows the same curve. The brokerage projects net sales of 179 billion rupees, up 39% year-on-year but 10% below the previous quarter.
Car and tractor makers in the group sold 26,688 units, 30% more than a year ago and 16% fewer than in April-June. Topline tied the sequential fall to uncertainty around the auto policy and slow clarity on the sales tax for hybrid and plug-in hybrid vehicles.
WHAT IS DRAGGING PAKISTAN AUTO SECTOR PROFITS
Weaker volumes are only part of the problem. Buyers felt the hybrid tax shift early. The reduced sales tax regime for hybrids lapsed after the Finance Act for 2026-27 made no provision to extend it, and several manufacturers reportedly suspended hybrid invoicing and deliveries while they waited for official clarification on the rate.
Margins have thinned as well. Topline puts average gross margins at 16.4%, against 19.5% a year earlier and 16.7% last quarter. Sazgar Engineering Works accounts for much of the squeeze, because it is absorbing the higher sales tax on its hybrid and plug-in hybrid variants, according to takeaways from its annual general meeting and corporate briefing.
The brokerage expects other income to shrink 33% to 5.3 billion rupees. In April-June, Honda Atlas Cars reached a settlement with the Government of Sindh over its outstanding Sindh Excise Infrastructure Development Cess (SIDC) liability, and booked a one-off discounting gain of 1.59 billion rupees as a result. That gain will not repeat.
Tax adds a further drag. Topline sees the effective tax rate rising to about 37%, from 35.5% a year ago and 34.8% last quarter.
INDUS STANDS ALONE
Indus Motor, the Toyota assembler, is the only company in the group to grow volumes on the quarter. Its sales rose 17% to 13,261 units. Topline expects Indus to earn 87.6 rupees a share, up 2% year-on-year and 13% on the quarter. Gross margins should recover to 13% from 10.3% after one-off adjustments in April-June. Topline also expects a cash dividend of 53 rupees a share, a 60% payout.
Sazgar takes the heaviest blow. The brokerage forecasts earnings of 63.3 rupees a share, down 13% from a year ago and 56% on the quarter. Volumes fell 52% sequentially to 3,137 units, and concessionary duties on imported parts expired in June. Topline estimates Tank 500 sales at 1,065 units and sees gross margins sliding to 13%. It still expects a 10-rupee dividend.
For Honda Atlas Cars, Topline sees earnings of 5.8 rupees a share, up 11% year-on-year but 67% below the previous quarter once the SIDC gain drops out and the tax rate normalises. Volumes climbed 52% from a year ago and slipped 7% on the quarter to 7,401 units. The company usually pays its dividend at year-end, and Topline expects no payout this time.
Millat Tractors could post earnings of 2.8 rupees a share, up 79% year-on-year after it absorbed Millat Equipment and cut costs. On the quarter, that figure falls 45% as tractor volumes roughly halved.
Despite the pressure on Pakistan auto sector profits, Indus Motor continues to deliver quarterly earnings growth, while Atlas Honda benefits from record motorcycle sales.
BIKES DEFY THE SLOWDOWN
Two-wheelers run in the opposite direction. Atlas Honda sold a record 470,399 motorcycles in the quarter, up 28% from a year ago and 1% from April-June. It holds about 85% of the two-wheeler market.
Topline, which names Atlas Honda among its top picks, expects the company to earn 48.5 rupees a share, up 25% year-on-year and flat on the quarter, and to announce a half-year cash dividend of 55 rupees.
