Gul Ahmed Textile Mills 1QFY21 Result Review

Gul Ahmed Textile Mills (GATM) reported consolidated 1QFY21 NPAT of PKR697mn (EPS: PKR1.63), more than doubling from an NPAT of PKR347mn (EPS: PKR0.81) SPLY and vs. Net loss of PKR1.2bn (LPS: PKR2.71) last quarter. The strong 1Q result is much better than our expected Net loss of PKR345mn (LPS: PKR0.81), where deviation largely stems from higher than expected revenues and gross margins

1QFY21 result highlights

Revenue witnessed a 36% yoy increase to PKR20bn (significantly above expectations), led by higher exports sales in the Home Textile segment, in our view. Sequentially, however, there is a 2.2x qoq increase in revenue, from PKR9.4bn in 4QFY20 – significantly impacted by the Covid-19 lockdowns globally. Recall that, Pakistan’s exports had risen 64% qoq.

Gross margins rose 6ppt qoq to 18%, greater than our expectation of 15%. This may be due to the uptick in overall sales during the quarter, resulting in lower overhead costs per unit. The decline in Retail margins may be due to the extensive discounts given during the quarter, in order to attract consumers to the Ideas outlets following the easing of the lockdown and due to an increase in competition from other competing outlets such as Sapphire and Nishat Linen (among others).

Distribution and Admin expenses declined by 12% yoy (although up 12% qoq). This may be due to lower freight costs, as international fuel prices declined and lower depreciation charges, in our view. Other income clocked in at negative PKR118mn, due to exchange losses, as the PKR appreciated 1.4% (against the US$) during the quarter, in our view.

Finance costs rose 56% yoy to PKR591mn from PKR378mn, due to an increase in short term borrowings amid higher sales and inventory pile up, from the last quarter, in our view. Effective tax rate clocked in at 26% compared to 32% last year. This may be due to the an increase in exports, in our view. 

Despite the stock’s 78% rally since April, the strong 1QFY21 result, reiterates our Buy stance on GATM, where we have a June 2021 TP of PKR50/sh. GATM trades at a P/E of 16.5x where we believe strong sales momentum can continue into 2QFY21. We look to revisit our estimates on the availability of quarterly accounts.

(Intermarket Securities Limited)

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