Earnings Report /

Kohinoor Textile Mills: 1QFY23 Review - Earnings halve owing to slump in margins

  • KTML has reported an unconsolidated EPS of PKR1.59, lower than our estimated EPS of PKR3.03 due to slump in margins

  • GMs clocked in at 16.2%, down c.10ppt YoY/5.4ppt QoQ, lower than our estimate of 18.4%

  • KTML has posted back to back weak earnings due to slump in GMs, which have overshadowed the strong revenue growth

Intermarket Securities
20 October 2022

Kohinoor Textile Mills (KTML) has reported an unconsolidated NPAT of PKR0.5bn (EPS: PKR1.59), down a sharp 52% YoY (up 11% QoQ). The sluggish result is significantly lower than our expected EPS of PKR3.03, where the deviation has largely stemmed from lower-than-expected gross margin and lower other income.  

Key result highlights for 1QFY23:

  • Net revenue has clocked in at PKR9.6bn, slightly lower than our expectation of PKR10bn, while 20% higher compared to last year. The annual rise in revenue is largely due to relatively higher Spinning segment revenues, in our view.   

  • Gross margins clocked in at 16.2%, down c.10ppt YoY/5.4ppt QoQ, lower than our estimate of 18.4%, likely owing to i) higher cotton inventory costs, and ii) decline in Home Textile exports due to slowdown.  

  • Distribution expense remained flat, despite the sharp rise in revenues. Administrative expenses increased by 55% YoY to PKR287mn. We await detailed accounts for clarity on the latter.

  • Among other line items: i) KTML reported finance cost of PKR286mn (up 53% YoY), due to higher borrowing rates, and ii) effective tax rate clocked in at 29% vs. 26% last year, likely due to supertax and lower exports.     

KTML has posted back to back weak earnings overshadowing the decent revenue growth. Margins are likely to dip further, albeit slightly, in the ongoing quarter, which will likely be due to i) increasing cotton inventory costs, ii) higher utility prices, and iii) possible decline in Home Textile exports on the back of heightened global recessionary fears and global inflation. We look to revisit our estimates upon availability of detailed accounts.