Al-Ghazi Tractors (AGTL) has reported 3QCY21 NPAT of PKR835mn (EPS: PKR14.40), up a sharp c.20% qoq and c.85% yoy. This takes 9MCY21 EPS to PKR38.21, up c.2.5x yoy from PKR15.34. The result is better than our expected EPS of PKR12.90, where the deviation has stemmed largely from higher-than-expected gross margins.

Key Highlights for 3QCY21:

Net revenues of PKR5.6bn, broadly in line with our expectations, up c.20% qoq amid a c.15% qoq increase in volumes to c.4,800 units from c.4,100 units in the previous quarter.

Gross margins clocked in at 24.7% (up c.2ppt qoq), due to (i) increase in volumetric sales (lower per unit overhead costs) and (ii) c.7% increase in tractor prices in June 2021 (costs passed on due to elevated input costs), in our view.

Distribution expenses increased by a sharp 90% qoq on account of higher volumetric sales and advertising expenses, in our view. Admin expenses rose to PKR100mn, from PKR25mn in 2Q. We await quarterly accounts for further clarity on the latter. Other income clocked in at PKR31mn (down c.15% qoq), due to lower cash balances, in our view.

Finance costs clocked in at negligible levels. This is potentially due to the full retirement of debt amid strong sales growth and potential rise in refunds (GST) from the government. Effective tax rate clocked in at 29%.

With the overall improvement in farmer dynamics likely to sustain amid renewed government focus on the sector, through incentives announced in the Budget (Agriculture Transformation Program) and elevated farmer dynamics, sales and margins will remain healthy in the coming quarters, in our view.

We have a Buy stance on AGTL with a December 2021 TP of PKR490/sh, which is accompanied by a CY21f D/Y of c.12%.

Courtesy – Intermarket Securities Limited