Earnings Report /
Pakistan

Gul Ahmed Textile Mills Ltd: 1QFY23 Review - Lower retail segment sales drag 1Q earnings

  • GATM reported consolidated EPS of PKR2.19 in 1QFY23, missing our EPS estimate of PKR4.81

  • GMs declined by 2.8ppt/2.7ppt YoY/QoQ to 17.7%, likely due to lower Retail segment contribution

  • We have a Jun’23 TP of PKR35/sh on GATM

Intermarket Securities
28 October 2022

Gul Ahmed Textile Mills (GATM) has reported consolidated NPAT of PKR1.3bn (EPS: PKR2.19) for 1QFY23, up 16% YoY, but down a sharp 65% QoQ. The 1Q result missed our EPS estimate of PKR4.81 by some distance, owing to lower revenues and higher Opex compared to expectations. 

Key highlights for 1QFY23:        

  • Revenues have clocked in at PKR31.7bn, up 29% YoY but are down 18% QoQ, lower than our estimate of PKR37.0bn. According to channel checks, the YoY rise in revenues is due to the strong order flows from Ikea. However, on a sequential basis, the decline in revenues is attributed to reduced Retail segment sales (absence of festivities).     

  • Gross margins have declined by 2.8ppt/2.7ppt YoY/QoQ to 17.7%, lower than our estimation of 19.2%, owing to moderating inventory gains, and lower Retail segment contribution. Due to upcoming renegotiations of contracts, GMs may remain near present levels, in our view.   

  • Distribution and Admin expenses have increased by 17% YoY (54% QoQ), owing to higher sales and one-off expenses that arose from the amalgamation and demerger of Ideas.

  • Among other line items: i) finance costs surged to PKR1.1bn, up 60% YoY due to higher borrowing rates, and ii) effective tax rate clocked in at 23% (in line with IMS estimate) vs 27% in SPLY, due to greater exports.   

Although GATM has sustained the strong YoY revenue growth from FY22, this is a weak result, largely due to the decline in margins (lowest since 1QFY21). However, strong order flows from Ikea is encouraging, which may cushion revenues in FY23f. However, gross margins are likely remain under pressure amidst moderating cotton inventory gains and higher input costs. We have a TP of PKR35/sh for GATM.