Nishat Mills: 3QFY22 review – earnings beat on higher-than-expected gross margins
Earnings Report / Pakistan

Nishat Mills: 3QFY22 review – earnings beat on higher-than-expected gross margins

  • NML posted an unconsolidated EPS of PKR9.81, amid sharp rise in revenues, beating our expected EPS of PKR4.96

  • GMs increased by a sharp c.4ppt yoy and qoq to 17% amid stellar Spinning segment margins

  • We have a Buy stance on NML with a June 2023 TP of PKR108/sh amid robust order flows

Abdul Ghani Mianoor
Intermarket Securities
28 April 2022

Nishat Mills Ltd (NML) has reported an unconsolidated NPAT of PKR3.4bn (EPS: PKR9.81) in 3QFY22, up a sharp c.85% yoy and c.50% qoq. Core textile earnings have come in at an estimated c.PKR2.2bn (EPS: PKR6.32) in 3Q, up from c.PKR0.6bn (EPS: PKR1.56) in SPLY. This takes 9MFY22 EPS to PKR25.75, up c.2.5x yoy. The 3Q result significantly beat our EPS expectation of PKR4.96, where the deviation largely stems from higher-than-expected gross margins.

Key result highlights for 3QFY22:

  • Revenue has clocked in at PKR31.4bn (highest quarterly sales), up by a strong c.70% yoy, slightly higher than our expectations; largely due to higher-than-expected Spinning segment sales (local and export sales of yarn). Also, Terry segment sales clocked in slightly higher than our expectations. 

  • Gross margins have increased c.4ppt yoy and qoq to 17%, much higher than our expectation of 13%. On a yoy basis, the rise in margins is attributed to the surge in yarn prices amid continuously increasing cotton prices. Stellar Spinning segment performance led the growth in overall volumes (Spinning margins clocked in at 22% in 3Q). 

  • Distribution and Admin expenses are up c.75% yoy (in tandem with the rise in sales), which can be attributed to higher freight costs amid robust sales, in our view.

  • Other income has clocked in at PKR1.4bn, down 7% yoy, likely due to dividends received from associate companies (listed and unlisted) and exchange gains.

  • Finance costs have nearly doubled yoy to PKR685mn, due to an increase in Kibor-based short-term borrowings, attributed to greater working capital needs amid robust sales. The effective tax rate has clocked in at 11% compared with 17% SPLY, potentially due to an increase in exports in the sales mix.

NML has posted an impressive core result, in light of record quarterly sales and improvement in margins. We believe that the robust sales momentum will continue for the remainder of FY22, on the back of a strong orders backlog, where overall exports have grown c.25% yoy in 9MFY22. Meanwhile, ongoing capacity expansions are likely to improve revenues. We reiterate our Buy stance on NML (June 2023 TP of PKR108/sh).