Earnings Report /

Tariq Glass Industries Ltd: 2QFY22 result preview – Earnings growth despite lower gross margins

  • TGL is expected to post EPS of PKR6.98, up 60% yoy

  • GMs likely to normalise by 5.3ppt qoq to 22.8% in 2Q

  • We have a Buy rating on TGL with a TP of PKR166/sh

Intermarket Securities
21 January 2022

We expect Tariq Glass Ltd (TGL) to post net profits for 2QFY22 of PKR0.96bn (EPS: PKR6.98), up 60% yoy but down 17% qoq. This will take net profits in 1HFY22 to PKR2.1bn (EPS: PKR15.37/sh), up 112% yoy. The yoy growth in 2Q profits is attributed to, (i) higher sales volume after the newly added capacity, and (ii) rise in glass prices in the domestic market.

Key result expectations for 2QFY22:

  • We expect TGL to post Net Revenue of PKR7.4bn, up 12% qoq (and 52% yoy), on account of higher glass prices to pass on recent rise in fuel costs and PKR devaluation. We expect production to fall by c.4% qoq as one of the two Tableware furnaces was shut down for maintenance in December. But TGL will offset this partly with inventory held from previous quarter; hence sales volume are expected to remain intact qoq.

  • Gross margins are expected to fall by about 5.3ppt qoq (albeit flat yoy), amid rising fuel costs (RLNG prices rose 13% qoq) and additional PKR devaluation of c.3% during 2Q. The decline in margin is also because of normalization as GMs of 28% in 1QFY22 were at the highest level since FY14.

  • Administration and Distribution expenses are expected at PKR86mn and PKR78mn, flat qoq and marginally up yoy.

  • Finance cost is expected to clock in at PKR132mn (PKR96mn in 1QFY22), rising 37% qoq and 138% yoy on account of rising interest rates. Short term borrowing rose 30% qoq in 1QFY22 to PKR1.1bn in tandem with the rise in sales and inventory.

TGL is one of the top picks in the IMS Universe for its ability to withstand in economic slowdown periods and consistent profitability over the past five years. The stock is also offering a forward DY of 12%. We have a Buy rating on the scrip with a TP of PKR168/sh.