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July 28, 2020

Kia Motors to roll out new models in 2021

Business

July 28, 2020

KARACHI: Kia Lucky Motors Pakistan – a joint venture of Pakistani and South Korean companies – is planning to roll out two to four new models within next one year, a brokerage house reported on Monday.

“As per channel checks, KIA is looking to launch 2-4 new models before the expiry of Automotive Policy 2016-2021 to avail tariff benefits,” analyst Shankar Talreja at Topline Research said.

The joint-venture is entitled to import duty-free plant and machinery with 10 percent customs duty on non-localised parts for five years under the policy, as opposed to 32.5 percent for existing players, and 25 percent customs duty on localised parts, compared to 50 percent for existing players.

Lucky Cement owns 71.6 percent and KIA Motors hold the remaining stake in the joint-venture company. The company launched two models so far, Sportage in July and Picanto in September last year.

“Both variants of the company has received very impressive response with monthly bookings clocking in at 1,500-2,000 units,” said Talreja. “We believe next launch would be in Sedan category (Cerato) as the company has already launched a hatchback and SUV-oriented models.”

In the sports utility vehicle (SUV) category, Hyundai Nishat is also planning to launch Tucson. However, its price is expected to be in the range of Rs6 to 7 million, which is considerably higher than the Sportage price of Rs4.5-5.5 million.

Kia Lucky Motors is estimated to witness a 5o percent surge in sales to 27,000 units in the next fiscal year and a 7 percent increase in fiscal 2022/23, given aggressive launch plans of the company.

“Balance sheet position of the company is very strong as advance booking price of Sportage generates healthy customer cash advances,” said Talreja. The company has currently received temporary subsidized relief financing from the central bank to the tune of Rs2 billion. The working capital requirement of the company is likely to increase to cater to high sales.

“We are estimating net financing (net of advances from customers) requirement of Rs8-9 billion, which can result in higher finance cost,” said Talreja. “We have assumed gross profit margins of KIA Lucky Motors at 8 percent for FY22 versus Indus Motors 11 percent, Honda 8 percent, and Pak Suzuki 7 percent.”

The company enjoys tax holiday for 10 years due to its presence in Bin Qasim Industrial Park. Due to customer preference and high demand, all three variants in Sportage (All Wheel Drive, Front Wheel Drive and Alpha) have delivery time of 1-3 months.

All Wheel Drive has the longest delivery time of 3 months. Premium on these variants range between Rs400,000-600,000. Picanto also has a delivery time of 1 month. “We believe the reason for success of Sportage is its pricing which is 37 percent lower than the available substitutes in the market.”