Earnings Report /
Pakistan

Kohinoor Textile Mills: 4QFY22 Review - Earnings miss amid lower margins and higher other expenses

  • KTML posted 4QFY22 unconsolidated EPS of PKR1.44, much lower than our expected EPS of PKR3.91, owing to lower GMs

  • GMs declined by c.1ppt yoy to 21.6%, while down c.4.5ppt QoQ likely due to moderating cotton inventory gains.

  • KTML also skipped out on a payout this quarter; we have Buy stance on the scrip with a TP of PKR124/sh

Intermarket Securities
2 September 2022

Kohinoor Textile Mills (KTML) has reported an unconsolidated 4QFY22 NPAT of PKR0.4bn (EPS: PKR1.44), down a sharp 60% YoY and 71% QoQ. This takes FY22 NPAT to PKR4.7bn (EPS: PKR15.84), up a sharp 72% YoY. The result is significantly lower than our expected EPS of PKR3.91, where the deviation has largely stemmed from lower-than-expected gross margin and higher other expenses. Also, KTML skipped out on a dividend payout this quarter, against our DPS estimate of PKR2.50.   

Key result highlights for 4QFY22:

  • Net revenue has clocked in at PKR10.6bn, slightly lower than our expectation of PKR11bn, while 28% higher compared to last year. This rise in revenue is largely due to higher product pricing, particularly in the Spinning segment.  

  • Gross margins clocked in at 21.6%, down c.1ppt/4.5ppt YoY/QoQ, lower than our estimate of 26%, owing to i) moderating Spinning segment margins, ii) elevated input costs, and iii) decline in Value-added segment margins, in our view.  

  • Distribution expense depicted an increase of 42% against last year, likely due to greater sales and transportation costs. Admin expenses increased by 28% YoY to PKR207mn.

  • KTML reported other expenses to the tune of PKR519mn, from PKR70mn last year. We await availability of annual accounts for further clarity on this. Also, other income increased to PKR246mn, likely owing to exchange gains, in our view.  

  • Among other line items: i) KTML reported finance cost of PKR200mn, due to higher borrowing rates (LTFF and EFS rates increased multiple times during the quarter), ii) effective tax rate clocked in at 62%, against our estimate of 42%, owing to higher local sales, in our view.

KTML posted a weak result, despite the strong revenue growth, while also disappointing on the payout side. Going forward, margins are likely to continue normalizing due to i) higher cotton prices, despite the company holding healthy cotton inventory, ii) higher utility prices, and iii) expected decline in exports on the back of higher global inflation and recessionary fears. We have a Buy rating on the scrip with a Jun’23 TP of PKR124/sh.