Gul Ahmed Textile Mills Ltd mixed result for 1QFY22

Gul Ahmed Textile Mills (GATM) reported consolidated NPAT of PKR1.2bn (EPS: PKR2.27) for 1QFY22, up a sharp c.70% yoy while down c.30% qoq. The 4Q result is lower than our expected EPS of PKR4.01, where the deviation largely stems from lower-than-expected gross margins.

1QFY22 result highlights

Revenues have witnessed a c.5% qoq increase to PKR24.6bn (record quarterly sales), broadly in line with our expectations. The rise in revenues is likely due to sequentially strong sales of the Spinning and Retail segments (the latter had declined in 4QFY21), in our view.

Gross margins have sequentially declined by 0.3ppt qoq to c.20.5%, lower than our expectation of 23.5%. This is likely due to a decline in Home Textile margins, amid rising yarn prices not fully passed on to customers, in our view. While the Retail segment showed good improvement qoq, the Spinning segment was the best performing segment for GATM.

Distribution and Admin expenses have increased by 13% qoq. Other income have clocked in at a negative PKR95mn, likely due to one-off items such as loss on disposal of assets or exchange losses, in our view.

Finance costs have declined c.20% qoq to PKR669mn from PKR818mn, due to a potential decrease in short-term borrowings amid higher sales, in our view. Effective tax rate have clocked in at 27% compared with an average 17% in FY21.

GATM sustained the robust revenue growth from FY21, and have recorded highest ever quarterly sales in 1Q. However, the rise in revenues could not be fully translated in the bottomline due to margin attrition, where we suspect the decline to have emanated from pressures in the Home Textile segment. With the Winter season holidays approaching in the West, and shortage of inventory with various Retail brands, the healthy demand for GATM’s exports is likely to continue, in our view. The commencement of expansions in the Spinning and Home Textile segments, continued PKR depreciation and absence of Covid related lockdowns will further fuel Retail segment and overall profitability in the coming quarters, in our view. We highlight that the Ideas IPO may unlock further appreciation in the stock price. GATM is one of our top picks in the IMS Universe, with a June 2022 TP of PKR63/sh.

Courtesy – Intermarket Securities Limited.

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