Nishat Mills Ltd (NML) has reported an unconsolidated 4QFY21 NPAT of PKR2.3bn (EPS: PKR6.48), up a sharp 22% qoq and 3.9x yoy. Core textile earnings has come in at an estimated PKR1.5bn (EPS: PKR4.25), up from PKR548mn in 3Q and core net loss of PKR15mn SPLY. FY21 NPAT has thus come in at PKR5.9bn (EPS: PKR16.84). The 4Q result is better than our expected EPS of PKR3.87, where the deviation largely stems from higher-than-expected gross margins. NML announced a final DPS of PKR4.0 (in line with estimates).
Key result highlights for 4QFY21:
Revenue has clocked in at PKR19.9bn, up 8% qoq, broadly in line with our expectation, where there was a broad-based increase in sales of both the Spinning segment (local and export sales of yarn both) and value-added segments (Home Textiles and Garments), in our view.
Gross margins are up c.3ppt qoq at 16.2% (highest in last five years), higher than our expectation of 13.4%. Note that NML’s margin growth underwhelmed in 3Q compared to peers. This may be due to a greater contribution from the Spinning segment in overall revenues amid higher yarn prices, in our view. NML is presently selling 40-45% of its yarn in the local market.
Distribution and Admin expenses are up 4% qoq. This can be attributed to higher freight costs due to (i) higher international fuel prices, and (ii) the ongoing shortage of containers for sea-borne shipments, in our view.
Other income has clocked in PKR923mn, broadly in line with our expectations, where the c.40% qoq decrease is largely due to the normalization of dividends from MCB (bumper dividend of c.PKR3.2/sh in 3Q), in our view.
Finance costs have decreased by c.20% qoq to PKR274mn, due to a reduction in borrowings amid a sequential rise in sales, in our view. The effective tax rate has clocked in at 13% compared with 17% last quarter, potentially due to an increase in exports in the sales mix.
We believe that the robust sales momentum will continue in FY22, on the back of strong orders backlog, where overall exports have grown c.30% yoy FY22td. Meanwhile, ongoing capacity expansions are likely to improve sales further. However, gross margins may slightly decline on account of lower margins on value-added segments (rising input costs) and price negotiations with customers. We reiterate our Buy stance on NML (June 2022 TP of PKR140/sh).