29 - Sep 11, 2011

The oil and gas regulatory authority (OGRA) has once again banned the import of CNG cylinders, which is likely to make a serious dent to the sales of locally assemblers cars and also the taxi scheme launched by the Punjab government because the taxis can only move on the affordable and cheaper fuel viz. compressed natural gas (CNG).

The ban was initiated on the back of what it described the regulatory risk pestering the auto assemblers in the country.

The CNG suppliers banned by OGRA include Faber and EKC, which are CNG kit suppliers to Pakistan Suzuki Motor Company (PSMC) and Indus Motor respectively.

Banning of these companies leaves only four approved suppliers on the OGRA list that obviously are not capable enough to cater to the need of the car assembling companies.

It may be recalled that OGRA earlier banned Faber in February on safety concerns. However, the decision was later reversed after serious drop in auto sales in the country. The ban keeps the much-dreaded regulatory risk alive for the local automakers.

It will not be out of place to mention that government has offered some benefits to automakers over the last one year too. However, automakers remained exposed to many decisions including the government relaxed age limit on import of used cars and LCVs from three to five years.

Later, the government also raised cap on maximum duty depreciation allowance from 50 to 60 per cent. On the positive note, the government has frozen the Auto Industrial Development Plan (AIDP).

As per the original plan, some high-tech parts were supposed to be put in localized parts list during financial year 2011-12 that could have significantly raised import duty as none of the assemblers have the capacity to produce engine, transmission, alternative, starter motors etc. as volumes are half of originally planned under the AIDP while margins have also contracted during increasing input cost.

According to informed sources, the auto assemblers may have to cut production during the interim period till the ban is restored, if the process prolongs and their existing supplies are exhausted. This may put PSMC volumes at risk as CNG variants account for two third of its production volumes.

This could also affect supply of CNG variant Mehran and Bolan cars under the Punjab government's taxi scheme, which is supposed to start Sep/Oct onwards.

The effect should be lower for Indus as it has recently introduced CNG variant of its Corolla that has not gained significant chunk of its volumes as yet, while Cuore is 10-12 per cent of its volumes.

It may be noted that prior to this abrupt decision of placing a ban on import CNG cylinders, the sales number of locally manufactured cars was on a rising trend.

As against Indian automobile industry suffering from depressed sales, the nationwide auto sales increased by 3.4 per cent in Pakistan. It is interesting to note that the Indian auto industry is offering discounts to improve sales these days.

The sales of locally assembled passenger cars (PC) and light commercial vehicles (LCV) in Pakistan increased by around 3.4 per cent to 146,497 units in 2010-11 as compared to 141,654 units sold in 2009-10. Production in the industry also increased to 153,997 units for the period ended June 30, 2011, an increase of 11 per cent over 138,587 units last year.

Punjab government's offer of green cabs has also contributed in growth of sales and the next quarter is likely to be stronger even going forward.

The liberalization of used car policy saw an increase of 87 per cent in the number of used vehicle imports to 6,793 units. If such policy continues, it will impede the growth of auto industry.

The board of directors of Indus Motor Company Ltd. met on August 24, 2011 to review the company's financial and operating performance for the year ended June 30, 2011.

The sales and production of Indus Motor's Toyota and Daihatsu brands for the year ended June 30, 2011 were 50,943 units and 50,759 units respectively, compared with the last year's figures of 52,063 units and 50,557 units respectively.


It is expected that the normalization parts supplies and launch of Corolla CNG variants should work to boost Indus's sales by 19 per cent year on year during current financial year.

It may be mentioned that during last few months, Indus has launched new variants of Corolla Xli/GLi and introduced automatic transmission in GLi and small engine size variants for its Altis. Now, it has also launched much-awaited CNG variants as well. While aftermarket CNG conversion is prevalent since long, greater confidence in factory-fitted equipment and warranty (that used to get void after installation of CNG kits) should attract buyers. However, the ban imposed on import of CNG Cylinders may hit the projected increase in sales in the days to come.

During the year ended June 30, 2011, the company's sales revenue increased to Rs61.7 billion, up by 2.7 per cent over Rs60.1 billion of last year; and the after tax profit decreased to Rs2.7 billion, low by 21 per cent of Rs3.4 billion of last year. The company's earnings per share also decreased to Rs34.90, as compared to Rs43.81 in the previous year.

The unprecedented floods and destruction in supply chain due to earthquake and tsunami in Japan, compounded with a general slowdown in the economic environment, lower GDP growth, rising interest rates, limited credit availability for auto financing, depreciation of the Pak Rupee against major currencies, unprecedented rise in prices steel and other inputs, inflation, etc. impacted the demand negatively.