Kohinoor Textile Mills Ltd (KTML) has reported an unconsolidated NPAT of PKR1.0bn in 1QFY22 (EPS: PKR3.33), nearly doubling yoy from an NPAT of PKR0.5bn (EPS: PKR1.71), while down 7% qoq. The 1Q result is lower than our expected EPS of PKR3.75, where the deviation stems from lower revenues and higher taxation.
Key highlights from 1QFY22 result:
Revenue has clocked in at PKR8.0bn, up c.15% yoy (down 5% qoq), lower than our expectation of PKR9.0bn, where we suspect lower sales of the Home Textile segment. We highlight that the Spinning segment contributed c.50% of KTML’s revenues in 4QFY21.
Gross margins increased by a sharp c.10ppt yoy to 26%, higher than our expectation of 23%. This can be attributed to greater Spinning segment profitability amid rising cotton and yarn prices in both the local and export markets, coupled with cheaper cotton inventory held by the company, in our view. We expect that margins in the Home Textile segment will improve in the coming quarters, due to increase in US$ selling prices and recent PKR/USD depreciation.
Distribution/Admin expenses are up a sharp c.30% yoy amid sharp rise in sales and freight charges, in our view.
Finance costs increased by c.20% qoq to PKR187mn, likely due to higher borrowings amid cotton procurement season, in our view. We highlight that the sector tends to procure cotton for the full year during 1Q. Effective tax rate clocked in at 26% compared with 13% last quarter, potentially due to an increase in local sales.
Despite the earnings miss, this is a strong result from KTML, where we expect the robust sales momentum to continue in the coming quarters, on the back of strong orders backlog and healthy cotton inventory. Home Textile margins are likely to improve amid pass-on of input costs to consumers, as cotton prices now hover close to US¢120/lb (up 56% yoy). The approval of the highly anticipated Textile Policy (draft likely to be presented in two weeks), is likely to be another impetus for growth in revenues, in our view, while the increased vaccination rates in the West has already boosted overall demand prospects. We, therefore, reiterate our Buy stance on KTML (June 2022 TP of PKR145/sh).
Courtesy – Intermarket Securities Limited.