Earnings Report /
Pakistan

Kohinoor Textile Mills: 3QFY22 review – earnings miss on lower-than-expected margins

  • KTML posted 3QFY22 unconsolidated EPS of PKR4.92, lower than our expected EPS of PKR6.13, owing to lower GMs

  • GMs increased by c.4ppt yoy to 26%, while down c.3ppt qoq likely due to moderating cotton inventory gains

  • After incorporating normalized GMs from FY23, we maintain our Buy rating on the scrip with a June 2023 TP of PKR124/sh

Abdul Ghani Mianoor
Intermarket Securities
21 April 2022

Kohinoor Textile Mills Ltd (KTML) has reported an unconsolidated NPAT of PKR1.5bn in 3QFY22 (EPS: PKR4.92), more than doubling yoy from a NPAT of PKR0.7bn (EPS: PKR2.28), while down 20% qoq. This takes 9MFY22 NPAT to PKR4.3bn (EPS: PKR14.40), up c.2.5x yoy. The 3Q result is lower than our expected EPS of PKR6.13, where the deviation stems from lower-than-expected gross margins.

Key highlights from 3QFY22 results:

  • Revenue has clocked in at PKR10.3bn, up a sharp 35% yoy, which we suspect is due to a surge in Spinning segment sales (finer quality yarn). We highlight that the Spinning segment contributed c.55% of KTML's revenues in 3QFY22.

  • Gross margins have increased by a strong c.4ppt yoy to 26.1%, lower than our expectation of 28.5%. The yoy rise can be attributed to greater Spinning segment profitability due to elevated cotton and yarn prices in both the local and export markets. On a qoq basis, we suspect moderating inventory gains have led to the decline in GMs. We await detailed accounts for further clarity. 

  • Distribution expenses are up c.10% yoy amid a surge in sales and freight charges, in our view. Admin expenses are up 8% yoy, while flat qoq. 

  • Finance cost has increased by c.15% yoy to PKR194mn, mainly due to higher short-term borrowing and interest rate (Kibor-based borrowing). The effective tax rate has clocked in at 20% compared with 26% last year, potentially due to an increase in exports.

KTML has posted weak earnings in 3Q on the back of a sharp decrease in gross margins. However, we expect the robust sales momentum to continue in the coming quarters, on the back of a strong orders backlog, while the company is likely to hold a relatively healthy cotton inventory. After incorporating normalized GMs from FY23 onwards, we maintain our Buy stance on KTML (June 2023 TP of PKR124/sh).