Industry Trend Analysis - Sazgar Looking To Capitalise On Booming Vehicle Demand - MAR 2018


BMI View: The increasing appeal of the Pakistani automotive market will continue to attract more automakers, such as Sazgar Engineering Works, as its consumer base expands and the demand for new vehicles provide s a supportive environment for new market entrants over our 2018-2022 forecast period.

In January 2018, Pakistan's automaker Sazgar Engineering Works announced plans to invest PKR1.76bn (USD15.88mn) to construct a car assembly facility in Pakistan. The facility will assemble cars and off-road vehicles, with aid from a Chinese partner, with an initial capacity to manufacture 24,000 vehicles annually. Sazgar hopes to have the facility up and running in June 2019 or FY2019/20 (fiscal year July-June), contingent on gaining the required regulatory approval.

As a result of this new investment, we are revising up our passenger vehicle production outlook for Pakistan in FY2020. We now forecast passenger vehicle output to expand by 20% in FY2020, up from our previous forecast of 9.9%. This decision follows several other automakers looking to capitalise on the rapidly growing domestic automotive market in Pakistan ( see ' Pakistan's Autos Emerging As A Bull Market ' , November 16 2017).

New Production Investment Continue To Drive Pakistan's Booming Market
Pakistan - Vehicle Production
f = BMI forecast. Source: BMI, PAMA

We forecast new passenger vehicle sales to expand by 20% in FY2018 and continue to expand at an annual average rate of 12.4% over our 2018-2022 forecast period. This strong demand for new vehicles will support Sazgar's decision to build an assembly plant and will continue to attract more automakers looking to capitalise on the growing demand for vehicles in Pakistan.

Strong Vehicle Sales To Support Increased Vehicles Production
Pakistan - Vehicle Sales
f = BMI forecast. Source: BMI, PAMA

We believe that the demand for new vehicles will remain elevated over our 2018-2022 forecast period on the back of Pakistan's robust economic growth. Our Country Risk team believes that although real GDP growth in Pakistan likely peaked at 5.3% in FY2017, it will remain strong at a forecasted rate of 5.0% in FY2018 and 4.4% in FY2019, albeit risks are tilted slightly to the upside. We believe that this economic performance coupled with the increased availability of cheaper locally produced vehicles will make consumers more likely to buy a new vehicle as the new entrants bring greater competition within the automotive sector, which Pakistan's automotive sector has been lacking. Our Country Risk team forecasts private final consumption to expand by 3.8% in FY2018 and continue to average the same rate over our forecast period ending in FY2022.

Although we forecast private final consumption growth to slow in FY2018 from an estimated 8.6% expansion in FY2017, it will remain elevated when compared to Pakistan's historical growth rates and therefore will continue to have a strong impact on the demand for new vehicles over our forecast period.