Earnings Report /
Pakistan

Millat Tractors: Q4 FY 19 results: EPS slightly lower than expected due to higher effective tax rate

    Ahmed Raza
    Ahmed Raza

    Investment Analyst

    Intermarket Securities
    5 September 2019

    MTL posted Q4 FY 19 unconsolidated NPAT of PKR863mn (EPS: PKR19.49), down 24%/9% yoy/qoq, which came in lower than our expected PKR924mn (EPS: PKR20.86). This took FY 19 NPAT to PKR3,638mn, down 32% yoy. MTL also announced a final dividend of PKR40/sh, in addition to PKR45/sh paid earlier.

    Tractor sales of the company declined by 27% yoy in Q4 FY 19 due to a slowdown in agricultural growth. Other highlights for the quarter include, (i) gross margins declined by 1.63ppts on a sequential basis, as PKR depreciation pushed up raw material cost, (ii) other income declined by 64% yoy due to lower interest income/dividends from subsidiaries, and (iii) higher effective tax rate of 34%, possibly due to tax reversal (new investment credit reduced from 10% to 5% in FY 19).

    The major decline in FY 19 profits came from depressed tractor volumes (down 25% yoy) due to slowdown in both agricultural and construction activities. Gross margins also declined by 2.81ppts yoy, but will likely stabilise from now due to the latest round of price increases in Jul'19 and only moderate PKR depreciation for FY 20.

    We have a Buy stance on MTL with a Jun'20 TP of PKR862/sh. Tractor volumes are expected to be under pressure in FY 20 as growth mainly comes in closer to election season. However, margin stability, potential for exports and a high dividend yield (9% for FY 20f) are positives for the company.

    Risks: (i) Increase in taxes on tractors/parts, (ii) higher farm input prices, and (iii) damage to crops due to floods, pest attacks etc.