Millat Tractors Limited reported earnings of PKR 30.16/sh in 2QFY20 (↑232/32% YoY/QoQ), taking 1HFY21 earnings to PKR 52.94/sh (↑226% YoY). The massive uplift in earnings was mainly driven by improving farm economics and volumetric growth in sales to 8,313 units (↑89/15% YoY/QoQ) in 2QFY21. The company further announced a dividend of PKR 50/sh. The result was largely inline with our expectation. Key highlights of the result are summarized below: –

In 2QFY21, MTL registered higher sales at PKR 10,278Mn up 114/21%, YoY/QoQ due to higher unit sales and sales tax subsidy, agriculture and construction sector upcycle. Therefore, the 1HFY21 topline increased to PKR 18,796Mn, up 90% YoY.

This positively impacted the gross margins, which stood at 22.8% in 2QFY21 compared to 17/22% in 2QFY20/1QFY21. This translated into higher gross profits of PKR 2,347Mn, up 188/25% YoY/QoQ.

The distribution & marketing expense also increased by 17% YoY to PKR 149Mn mainly due to higher sales volume while the administration expenses increased by 13% YoY to PKR 125Mn.

The other expenses swelled rapidly at PKR 161Mn, up 255/43% YoY/QoQ. Subsequently, the other income account also increased to PKR 199Mn, up 39/185% YoY/QoQ to counter the expenses.

Finance costs declined by 94% YoY to a meager PKR 6Mn owing to lower interest rates and almost non existent debt levels.

We have a BUY call on MTL with Dec-21 price target of PKR 1250.0/sh, offering an upside of 3.6% from the last close.

Courtesy – BMA Capital Management Ltd