Earnings Report /
Pakistan

Al Ghazi Tractors: 2QCY22 Review - Lower margins lead to earnings miss

  • AGTL announced an EPS of PKR13.31 for 2QCY22, lower than our expectation, largely owing to lower GMs

  • GMs decreased by c.2.5ppt YoY to c.20%, due to sharp PKR slippage and elevated input costs, in our view

  • We have a Neutral stance on AGTL with a target price of PKR395/sh

Intermarket Securities
30 August 2022

Al-Ghazi Tractors (AGTL) has reported 2QCY22 NPAT of PKR0.8bn (EPS: PKR13.31), up a 12% YoY, but sequentially down by 33%. This takes 1HCY22 NPAT to PKR1.9bn (EPS: PKR33.31), up 40% YoY. The result is significantly lower than our expected EPS of PKR19.00, where the deviation has largely stemmed from lower-than-expected gross margin.   

Key result highlights for 2QCY22:

  • Net revenue has clocked in at PKR11.2bn, slightly lower than our expectations, but doubled compared to the previous year. This is predominantly due to a similar rise in volumetric offtake to c.8,200 units and multiple price hikes during the year. 

  • Gross margins clocked in at 20%, down c.2.5ppt YoY and lower than our estimate of 22%, owing to i) sharp rise in input costs, ii) PKR depreciation, and iii) lagged price hikes, in our view. Gross margins are likely to remain near current levels in the coming quarters due to the recent price hike towards the end of Jun’22, in our view.

  • Both distribution expenses and admin expenses surged, albeit from a low base last year, owing to the sharp rise in sales volumes and inflationary pressure. We await further clarity on this. 

  • Among other line items: i) other income declined by a sharp 50% YoY, likely owing to a decline in cash equivalents, ii) AGTL reported negligible finance cost, and iii) effective tax rate clocked in at 58%, slightly higher than our estimate of 53%.  

Despite the strong revenue and sales growth, this is a weak result from AGTL, largely owing to the decline in gross margin. Going forward, tractor sales are likely to be impacted amid depressed farmer income due to recent floods. Therefore, despite the price hike in Jun’22, margins are likely to remain near present levels, in our view.  We have a Neutral stance on AGTL with a TP of PKR395/sh.