Millat Tractors Ltd (MTL) has reported 4QFY22 NPAT of PKR955mn (EPS: PKR9.86), lower than last year’s EPS of PKR18.16 and last quarter’s EPS of PKR18.21, taking FY22 NPAT to PKR5.9bn (EPS: PKR60.56), down 11% YoY. The result missed our estimated EPS of PKR11.23, where the deviation largely stemmed from lower-than-expected revenues and finance costs.  The result was also accompanied with a final payout of PKR20.00/share cash and 20% shares, taking full year payout to PKR51.25/share cash and 60% shares. We believe the lower cash payout (IMS expectation of PKR30/sh), may have been due to recent rights issue by Hyundai-Nishat motors and delayed GST refund disbursements by the government.     

Key highlights:

MTL has posted a 20% YoY increase in sales to PKR15.4bn, lower than our expected PKR16.2bn. Annual rise in sales is due to higher prices of tractors, owing to multiple price hikes during the quarter, as volumes declined by 5%.    

Gross margin declined by 1ppt YoY to 22.2%, slightly lower than our expectation of 22.8%. The slight attrition compared to the previous year is largely attributed to i) sharp PKR slippage and volatility, ii) elevated commodity prices, and, iii) lagged price hikes, in our view. Also, towards the end of Jun’22, MTL increased prices further by 7-10%.

Distribution expenses declined by a sharp 23% YoY, owing to lower volumetric sales, whereas administrative expenses rose by 40% YoY. We await for clarity on the latter.   

Among other line items: i) other income declined by 32%, owing to a reduction in cash balances due to refunds not yet disbursed by the government, ii) finance costs surged to PKR178mn from negligible levels, owing to short-term borrowings, and iii) effective tax rate clocked in at 64% (IMS estimate of 62%)..

Despite the earnings miss, MTL posted a decent result due to near stable gross margins (QoQ) and continued to payout both cash and shares. Going forward, the recent floods are likely to pressure tractor sales because of the strain on farmer income. Also, recent plant shutdown (two-weeks) will further hamper gross margins in 1HFY23, in our view. However, sooner-than-expected recovery in farmer income is likely to result in a rebound in tractor sales. Also, recovery in export sales is likely to boost overall sales as well. We currently have a Neutral stance on MTL with a TP of PKR771/sh, but look to revisit our estimates in light of recent events. 

Courtesy Intermarket Securities Limited.