The 4QFY20 result review of Millat Tractors Ltd

Millat Tractors (MTL) reported 4QFY20 NPAT of PKR790mn (EPS: PKR15.85), up 43% qoq but lower by 9% yoy. This takes FY20 NPAT to PKR2.2bn (EPS: PKR43.16), down 41% yoy. The 4Q result is better than our expected NPAT of PKR659mn (EPS: PKR13.22). MTL announced a final dividend of PKR30/sh (vs. our expected DPS of PKR25), taking full year DPS to PKR50.

4QFY20 result highlights

Revenue witnessed a 15% yoy decline to PKR7.1bn (broadly in line with our expectations) led by a 28% yoy drop in volumes to 6,095 units compared from 8,468 units in 4QFY19. Sequentially, however, there is a 20% qoq increase in revenue, as volumes increased by 13% qoq.

Gross margins rose 2.7ppt qoq to 21%, greater than our expectation of 19%. This may be due to the uptick in tractor sales during the quarter, resulting in lower overhead per unit costs.

Distribution expenses decreased 13% yoy and by a sharp 47% qoq, while admin expenses remained flat vs. the same period last year. The former could be because of a decrease in exports during 4Q. Other income declined 87% yoy to PKR8mn (compared to PKR61mn) and 90% qoq due to lower cash balances, in our view.

Finance costs, albeit coming from a low base, rose 5.3x yoy to PKR13mn, while down 83%qoq. We attribute this to liquidity stuck in government refunds, forcing the company to raise short term debt. Effective tax rate clocked in at 30% compared to 27% last quarter. This may be due to a decrease 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 88% since March and is trading at a P/E of 17.1x. We look to revisit our estimates on the availability of annual accounts.  (Intermarket Securities Limited)


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