Millat Tractors reports better financial results against market expectations

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Millat Tractors (MTL) reported 1QFY21 NPAT of PKR1.1bn (EPS: PKR22.78), up 3.2x yoy, from an NPAT of PKR356mn (EPS: PKR7.15) and up 1.4x qoq from an NPAT of PKR790mn (EPS: 15.85). The 1Q result is better than our expected NPAT of PKR998mn (EPS: PKR20.03), where deviation stems from (i) slightly higher Gross margins (ii) higher other income, and (iii) effective tax rate of 24% compared to an estimated 29%.

1QFY21 result highlights

Revenue witnessed a 67% yoy increase to PKR8.5bn (broadly in line with our expectations) led by a 50% yoy rise in volumes to 7,225 units compared from 4,829 units in 1QFY20. Sequentially, however, there is a 43% qoq increase in revenue, as volumes increased by 19% qoq.

Gross margins rose 0.7ppt qoq to 22%, greater than our expectation of 21.3%. This may be due to the uptick in tractor sales during the quarter, resulting in lower overhead per unit costs. MTL increased prices of tractors during the quarter by c. 2%.

Distribution expenses rose 32% yoy and by 7% qoq, while admin expenses rose 5% yoy (up 22%qoq). The former may be because of an increase in both local and export sales during 1Q. Other income rose to PKR70mn from PKR23mn, due to higher cash balances, in our view.

Finance costs, albeit coming from a low base, declined to PKR0.8mn from PKR27mn, due to the paying off of short term borrowings during 4QFY20. Effective tax rate clocked in at 24% compared to 30% last quarter. This may be due to an increase in export sales, in our view.

We have a Neutral stance on MTL with a June 2021 TP of PKR902/sh, where the stock rallied 70% since April and is trading at a P/E of 18.1x. We look to revisit our estimates on the availability of quarterly accounts. ( Intermarket Securities Limited)

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