Earnings Report /
Pakistan

Gul Ahmed Textile Mills Ltd: 4QFY22 Review - Healthy revenue growth led to earnings beat

  • GATM posted a consolidated EPS of PKR6.26 for 4QFY22, significantly beating our EPS estimate of PKR3.34

  • GMs decreased by 0.4ppt YoY, largely due to moderating cotton inventory gains; strong orders from Ikea drove revenues

  • Going forward, margins are likely to be under pressure; We have a Buy on GATM with a Jun’23 TP of PKR61/sh

Intermarket Securities
30 September 2022

Gul Ahmed Textile Mills (GATM) has reported consolidated NPAT of PKR3.9bn (EPS: PKR6.26) for 4QFY22, more than double compared to last year and up 58% QoQ. This takes FY22 NPAT to an all-time high of PKR9.8bn (EPS: PKR15.96), up 87% YoY. The 4Q result significantly beat our EPS estimate of PKR3.34, owing to greater revenue and a lower effective tax rate. However, GATM skipped out on a payout in FY22, against our PKR2.5/sh expectation, owing to i) expectations of a decline in profitability in FY23, and ii) potential GIDC payments.

Key highlights for 4QFY22:        

  • Revenues have clocked in at a record high PKR38.9bn, up 67% YoY and 48% QoQ, greater than our estimate of PKR30bn. According to channel checks, the sharp rise in revenue is due to i) strong order flows from Ikea, which are likely to continue in FY23 and possibly beyond, and ii) pent up deliveries from the previous quarter.     

  • Gross margins have declined by 0.4ppt/6.8ppt YoY/QoQ to 20.4%, much lower than our estimated 27.7%, owing to moderating inventory gains, as GATM has been procuring cotton at higher rates. Going forward, gross margin is likely to remain under pressure owing to higher input costs, in our view.  

  • Distribution and Admin expenses have decreased by 14% YoY and a sharp 49% QoQ, owing to greater operational efficiencies. Other income surged to PKR883mn, likely due to exchange gains, in our view.

  • Among other line items: i) finance costs have more than doubled compared to the previous year owing to rollover of incentivized borrowings to higher rates, and ii) effective tax rate clocked in at 8% (IMS estimate of 35%), due to greater exports. According to channel checks, GATM has now reached an exports level close to 80%.  

GATM has sustained the strong revenue growth in 4Q, amid aggressive capacity expansion and robust Spinning segment performance. The strong order flow from Ikea is encouraging, which may cushion any decline in revenues in FY23. However, from a profitability point of view, gross margins will likely remain under pressure (normalized cotton inventory gains) and input costs, whereas finance costs should remain elevated in FY23. We have a Buy rating on GATM with June 2023 TP of PKR61/sh, but will look to revisit our estimates on availability of annual accounts.