Earnings Report /
Pakistan

Al Ghazi Tractors: 4QCY21 review – earnings miss but strong DPS boosts confidence in future payout

  • AGTL announced an EPS of PKR12.82 for 4QCY21, missing our expected EPS of PKR13.87, however DPS exceeded expectations

  • GMs decreased by c.7.5ppt yoy to 21.3%, due to sharp PKR slippage and elevated input costs, in our view

  • Despite the earnings miss, the strong payout led to the scrip to rally to its upper circuit; CY22f DY of c.10%

Abdul Ghani Mianoor
Intermarket Securities
13 April 2022

Al-Ghazi Tractors (AGTL) has reported 4QCY21 NPAT of PKR743mn (EPS: PKR12.82), up a sharp c.60% yoy but down c.10% qoq. This takes CY21 EPS to PKR51.03, more than doubling yoy from an EPS of PKR23.28 in CY20. The result is slightly lower than our expected 4QCY21 EPS of PKR13.87, where the deviation has stemmed largely from lower-than-expected gross margins. AGTL announced a final DPS of PKR51.03, greater than our expected DPS of PKR47.

Key highlights for 4QCY21:

  • Net revenues of PKR5.4bn, broadly in line with our expectations, up a strong c.95% yoy (down c.5% qoq), largely attributed to the c.60% yoy rise in volumes to c.4,400 units. Also, the price hikes in November further boosted revenue, in our view.  

  • Gross margins clocked in at 21.3%, down c.7.5ppt yoy and c.3.5ppt qoq, due to (i) sharp rise in commodity prices, shipping freight and other input costs and (ii) sharp PKR depreciation, in our view. Gross margins are likely to be cushioned from the continuous elevated input costs in the coming quarters due to the multiple price hikes, in our view.   

  • Distribution expenses decreased by a sharp c.65% yoy despite the sharp rise in sales. We await annual accounts for further clarity on this. Admin expenses rose c.75% yoy to PKR94mn. Other income clocked in at PKR47mn, from PKR14mn last year, due to greater cash balances, in our view.

  • Finance costs clocked in at negligible levels. This is due to the full retirement of debt amid strong sales growth. The effective tax rate clocked in at 29%.

Despite the strong growth in sales CY22td, margins are likely to remain under pressure in the coming quarters given the previous PKR slippage and elevated commodity prices. Although farmer dynamics remain favorable for the sector, the potential increase in GST in the FY23 Budget (assuming no subsidies are given), remains a key risk to the sector, in our view. Although we have a Neutral stance on AGTL with a December 2022 TP of PKR405/sh, in light of the strong payout we may revisit our estimates upon availability of detailed accounts.