Earnings Report /
Pakistan

Gul Ahmed Textile Mills Ltd: 3QFY22 Review: Healthy GMs lead to rise in earnings; in line

  • GATM posted a consolidated EPS of PKR3.96 for 3QFY22, in line with our expectations amid surge in GMs

  • GMs increased by a sharp 6ppt yoy to c.27%, largely due to sequentially strong Spinning segment margins

  • We have a Buy stance with a June’23 TP of PKR61/sh amid healthy order book and capacity expansions

Abdul Ghani Mianoor
Intermarket Securities
6 May 2022

Gul Ahmed Textile Mills (GATM) has reported consolidated NPAT of PKR2.4bn (EPS: PKR3.96) for 3QFY22, up 43% yoy and 3% qoq. This takes 9MFY22 NPAT to PKR6.0bn (EPS: PKR9.70), up a sharp 66% yoy. The 3Q result is in line with our expected EPS of PKR3.89.

Key highlights for 3QFY22 result:

  • Revenues have clocked in at PKR26.2bn, up 17% yoy but down 18% qoq. The sharp yoy rise is likely due to the robust Spinning segment order book, coupled with capacity expansions in the Spinning and Home Textile segments. However, on a qoq basis, we assume delays in shipments have led to the decline. We await quarterly accounts for further clarity.     

  • Gross margins have surged by c.6ppt yoy and qoq to c.27.2%, higher than our expectation of 22.5%.  This is likely due to robust Spinning segment margins amid surge in cotton prices and inventory gains. Also, upward revision in export prices is likely to have boosted margins for the Value-added segment, in our view.  

  • Distribution and Admin expenses have increased by 48% yoy, likely due to the steep rise in sales. Other income has clocked in at PKR73mn, likely due to exchange gains, in our view.

  • Finance costs have increased by a sharp 57% yoy to PKR565mn, due to a potential increase in short-term borrowings amid greater working capital requirements, coupled with higher borrowing rates. 

GATM has sustained the strong growth momentum from FY21, amid aggressive capacity expansion and robust Spinning segment performance, on the back of a healthy order book. Due to the procurement of cotton at lower than market rate (similar to peers) and renegotiation of export prices with clients in recent months, gross margins in the coming quarters are likely to remain at healthy levels, in our view. We highlight that the Ideas IPO may unlock further appreciation in the stock price; however, due to the presently weak market sentiment, the IPO may face more delays, in our view. We have a Buy rating on GATM with June 2023 TP of PKR61/sh.