Nishat Mills Ltd (NML) has reported an unconsolidated NPAT of PKR1.3bn (EPS: PKR3.58) in 4QFY22, down 45% YoY and 64% QoQ, owing to significant margin attrition. We estimate core-textile operations to have incurred a loss of PKR88mn (LPS: PKR0.25), for the first time since 4QFY20. This takes FY22 EPS to a record PKR29.33, up 74% YoY. The 4Q result missed our EPS expectation of PKR4.94, largely owing to lower-than-estimated gross margin. The result was accompanied by a final DPS of PKR4.00, lower than our estimate of PKR6.00.
Revenue has clocked in at PKR31.5bn (highest quarterly sales), up by a strong 58% YoY, slightly lower than our expectation of PKR32.9bn; largely due to lower-than-expected Spinning segment sales (local and export sales of yarn), in our view.
Gross margin has decreased by 4.6ppt/5.5ppt YoY/QoQ to 11.5%, much lower than our expectation of 16%. The decline in margins is likely to be attributed to a lack of inventory gains amid higher cotton inventory costs.
Distribution and admin expenses are up 62% YoY (in tandem with the rise in sales), which can be attributed to higher transportation costs amid robust sales, in our view.
Other income has clocked in at PKR1.6bn, up 71% YoY, likely due to significant exchange gains and dividends received from unlisted associate companies.
Finance costs have more than doubled compared to the previous year 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 4.3%, slightly higher than our estimated 4.1%, owing to the high one-off supertax.
NML has posted a weak core result, owing to a significant decline in gross margin, despite record quarterly sales and PKR slippage. We believe that the robust sales momentum is likely to be short-lived in FY23, owing to a potential slowdown in exports (international inflation and recession fears). However, ongoing capacity expansions are likely to improve revenues. We have a Buy stance on NML (June 2023 TP of PKR108/sh).