Earnings Report /
Pakistan

Millat Tractors: 1QFY23 Review - Distribution costs hurt earnings

  • MTL reported a consolidated EPS of PKR4.72, lower than our estimated EPS of PKR5.85, due to higher selling costs

  • GMs declined by c.5ppt YoY/3ppt QoQ to 19.5%, lower than our estimate of 20.5% amid lower sales & sharp PKR slippage

  • MTL posted a decent result despite the earnings miss. We retain our Neutral stance on the scrip

Intermarket Securities
26 October 2022

Millat Tractors Ltd (MTL) has reported a consolidated 1QFY23 NPAT of PKR549mn (EPS: PKR4.72), much lower than last year’s EPS of PKR12.47 and last quarter’s EPS of PKR8.22. The result came in lower than our estimated EPS of PKR5.85, where the deviation largely stemmed from lower-than-expected gross margin and higher distribution costs.       

Key highlights

  • MTL has posted a 27% YoY decrease in sales to PKR7.6bn (in line with estimates). The multiple price hikes towards the end of FY22 cushioned the decline in revenues, as volumes decreased by 42% YoY.     

  • Gross margin declined by c.5ppt YoY/3ppt QoQ to 19.5%, lower than our expectation of 20.5%. The sharp attrition in gross margin compared to the previous year is largely attributed to i) sharp PKR slippage and volatility, and ii) decline in volumes.

  • Distribution and administrative expenses remained flat YoY. We believe that higher transportation costs offset the decline in volumetric sales.    

  • Among other line items: i) other income declined by 66%, owing to a reduction in cash balances, likely due to refunds not yet disbursed by the government, ii) finance costs surged to PKR198mn owing to short-term borrowings, and iii) effective tax rate clocked in at 27%.

MTL posted a decent result despite the earnings miss, as gross margins remained relatively stable compared to AGTL that witnessed a sharp contraction during the quarter. The recent floods are likely to pressure tractor sales in the near-term because of the strain on farmer incomes. That said, we would look to add MTL on dips.