Earnings Report /
Pakistan

Al Ghazi Tractors: Q1 CY 20 review – Better-than-expected gross margin beats our estimate

  • AGTL reported Q1 CY 20 NPAT PKR166mn (EPS: PKR2.86), vs. NPAT of PKR566mn (EPS: PKR9.76) in the same period last year

  • Net revenues of PKR2,7bn, down 45% yoy (up 85% qoq) due to a 50% yoy decline in volumes

  • Gross margins of 18.5% came in significantly higher than our expectation of 3.4%

Intermarket Securities
29 May 2020

Al-Ghazi Tractors (AGTL) reported 1QCY20 NPAT PKR166mn (EPS: PKR2.86), compared to a profit of PKR566mn (EPS: PKR9.76) in the same period last year and a net loss of PKR311mn (LPS: PKR5.37) in 4QCY19. This is significantly better than our expected LPS of PKR1.08. Major surprise was a gross profit PKR497mn potentially due to better pass-on of cost pressures to customers. AGTL did not announce any dividends for the quarter. We have a Sell recommendation on the stock with a TP of PKR347. 

Key highlights:

  • Net revenues of PKR2,682mn, down 45%yoy (up 85%qoq) due to a 50% yoy decline in volumes to 2,852 units from 5,716 units last year (volumes however rose sharply by 102% qoq from 1,411 units in 4QCY19). This may be due to the New-year effect, as tractor sales historically tend to witness an upward trend during this quarter. 
  • Gross margins of 18.5% came in significantly higher than our expectation of 3.4%, potentially due to (i) upward revision of prices of tractors to pass on cost increases amid stable PKR/USD and relative improvement in the macroeconomic environment (ii) lower per-unit overhead costs due to increase in unit sales during the quarter, in our view. 
  • Distribution expenses decreased by 16% yoy (lower sales) and 24% qoq (promotions in the previous quarter, as expenses were high in 4Q) while admin expenses remained flattish (3% yoy decline). Other expenses declined 12%yoy, while other income declined by 54% yoy (lower cash balance).
  • Finance costs declined by 10% yoy and 19%qoq. This may be due to a decrease in borrowings due to the increase in sales and potential increase in liquidity due to refunds from the government.