Al-Ghazi Tractors (AGTL) has reported 1QCY22 NPAT of PKR1.2bn (EPS: PKR19.99), up a sharp 67% yoy and 56% qoq (highest quarterly earnings since 2015). The result is much higher than our expected 1QCY22 EPS of PKR16.09, where the deviation has stemmed largely from higher-than-expected gross margins.

Key Highlights for 1QCY22:

• Net revenues of PKR8.7bn, slightly higher than our expectations, up a strong 72% yoy and 61% qoq. This is largely attributed to the 37% yoy rise in volumes to 6,563 units. Multiple price hikes (twice during the quarter alone and third since November) further boosted revenue, in our view.  
• Gross margins clocked in at 22.1%, down c.1ppt yoy (but up qoq by a similar magnitude) due to (i) sharp rise in commodity prices, shipping freight and other input costs and (ii) sharp PKR depreciation, in our view. Gross margins are likely to remain near current levels in the coming quarters due to the recent price hikes, in our view.
• Distribution expenses decreased by a sharp 65% yoy due to the strong sales growth. Admin expenses declined by 18% yoy. We await for further clarity on this. Other income clocked in at PKR42mn, due to greater cash balances, in our view.

This is a strong result from AGTL, which has ramped up volumetric sales through aggressive marketing, in our view. In light of the impressive sales momentum (as seen in April selling 2,603 units), earnings and margins are likely to remain healthy in the coming quarters amid decent farmer dynamics. However, the potential increase in GST in the FY23 Budget (assuming no subsidies are given), remains a key risk to the sector, in our view.

We have a Neutral stance on AGTL with a December 2022 TP of PKR395/sh.

Courtesy –  Intermarket Securities Limited.