Earnings Report /
Pakistan

Al Ghazi Tractors: 3QCY22 Review - Sharp attrition in margins

  • AGTL reported 3QCY22 EPS of PKR4.36, down a sharp 70% YoY and 67% QoQ, missing our EPS estimate of PKR10.89

  • Gross margins declined by a sharp 16.6ppt YoY, lower than our estimate of 19.5%

  • We will look to revisit our estimates once detailed accounts are out.

Intermarket Securities
18 October 2022

Al-Ghazi Tractors (AGTL) has reported 3QCY22 NPAT of PKR0.3bn (EPS: PKR4.36), down a sharp 70% YoY and 67% QoQ. This takes 9MCY22 NPAT to PKR2.2bn (EPS: PKR37.67), flat YoY. The result is significantly lower than our expected EPS of PKR10.89, where the deviation has largely stemmed from lower-than-expected gross margin of just 8% vs. 25% in the same period last year.  

Key result highlights for 3QCY22:

  • Net revenue has clocked in at PKR6.5bn, up 17% YoY, in line with our expectations. This is predominantly due to higher tractor prices amid multiple price hikes, as volumes declined by 14% YoY to c.4,200 units.  

  • Gross margins clocked in at 8.0%, down 16.6ppt YoY and lower than our estimate of 19.5%, with the decline likely due to i) lower volumetric offtake, and ii) lagged price hikes, in our view. We await detailed accounts for further clarity on the sharp margin attrition. 

  • Both distribution expenses and admin expenses have surged, albeit from a low base last year, owing to inflationary pressures.

  • Among other line items: i) other income more than doubled YoY, likely owing to significant increase in cash equivalents, ii) finance costs increased due to greater borrowings, and iii) effective tax rate clocked in at 33%.  

This is a significantly weak result from AGTL, attributed to the massive decline in gross margin. Tractor sales are likely to be impacted in the near term amid depressed farmer income due to recent floods. We will look to revisit our estimates once detailed accounts are out.