KARACHI: South Korea’s largest automaker Hyundai plans to set up a car assembly plant in Pakistan in collaboration with Nishat Mills Ltd (NML).

The two companies have signed a memorandum of understanding to establish a greenfield project for the assembly and sales of both passenger and commercial vehicles.

In a filing to the Pakistan Stock Exchange on Friday, the textile mill said its board of directors has given the go-ahead to the project, which is subject to applicable statutory and regulatory approvals.

The notice, however, did not give any further details regarding the value of investment, project site, job creation prospects and the year of starting assembly of vehicles.

An NML official, who asked not to be named, said the company was initially considering starting assembly of car and commercial vehicles in Faisalabad. He said the project’s feasibility was being prepared to ascertain total investment and the year when operations begin. Further discussions would be held with Hyundai in this regard.

Nishat Group of Companies — after venturing into cement, bank and power sectors — will now try its hand at the booming auto sector.

An analyst at Topline Securities estimated the project’s cost at around $150-200 million with a lead time of three years. He said back-of-the-envelope calculations, assuming 50 per cent share of NML in the venture, showed that this would have a positive impact on the company’s bottom line by around 10pc.

He said Pakistan’s car penetration of 13 vehicles per 1,000 people (significantly lower than the regional average of 162) means there is a strong potential for automobile growth. Higher disposable income, low interest rate environment and NML’s hands-on expertise to manage diversified businesses provide a lucrative opportunity for the company to exploit growing local automobile industry.

NML has not disclosed the vehicles’ models it plans to introduce. Pakistanis has already had the experience of using Hyundai Santro Plus 1,000cc and Shehzore pickup introduced by Dewan Motors in 1999-2000.

In its first year of operation in 1999-2000, Dewan assembled and sold 599 and 378 of Santro units which hit peak production and sales of 8,604 and 7,031 units in 2005-2006. Later, financial problems hit the company resulting in turbulence in production in later years.

In 2010-11, the production and sales of 1,000cc model stopped. In 2013-14, Santro came back with production and sales of 210 and 152 units but it could not sustain and its production dropped to nil in 2014-15 with sales of only 50 units.

In 2015-16, only seven units were sold while production was nil. In July-December 2016, there was no production and only one unit was sold in December 2016.

Shehzore met the similar fate. Its production started in 1999-2000 with 1,534 units and sales of 1,429. Its highest production and sales were recorded at 9,368 and 9,234 units in 2005-06. After surviving for a few years, production and sales became zero in 2011-12 and 2012-13.

Shehzore re-entered the market with production and sales of 698 and 680 units in 2013-14, but was not able to sustain it. In 2014-15 and 2015-16 the production remained nil with sales of 10 units each in these two fiscal years. In July-December 2016, there was nil production and sales as compared to only three units produced in July 2015.

Market sources said Pak Suzuki’s Cultus, Alto and Mehran, and Indus Motor’s Daihatsu Cuore led to the exit of Hyundai Santro.

It is not clear how NML plans to compete with old players who have planned to launch new models in the coming years. Lucky Group is also entering the market in partnership with Kia, another automaker from South Korea.

Observers say that the new auto policy announced last year seemed to be yielding results and luring investors.

Published in Dawn February 4th, 2017