Al-Ghazi Tractors Ltd. (AGTL) held its analyst briefing today to discuss CY23/1QCY24 results and the company’s future outlook. The following are the key highlights:
· Company posted earnings of PkR2.6bn (EPS: PkR45.1) in CY23 compared to PkR2.2bn (EPS: PkR37.2) in CY22. The said increase was primarily attributable to improved gross margins and higher other income (up 3xYoY) due to an increase in short-term investments.
· Management states that CY23 profitability would have been much higher if 1QCY23 was not impacted by significant currency devaluation and trade restrictions imposed by the SBP, leading to supply chain disruptions.
· Moreover, operating expenses saw a 76%YoY increase in CY23 following the company’s transition from its old ERP system to SAP S/4HANA. This shift resulted in higher costs due to expensive licensing and implementation costs.
· Company posted topline of PkR9.5bn in 1QCY24 (up 2.3xYoY) vs. PkR4.2bn in SPLY. The increase was primarily attributable to higher sales volumes amid enhanced agriculture activity and higher tractor prices.
· Gross margins improved to 22% in 1QCY24 from 15% in 1QCY23, attributed to currency stability compared to the SPLY.
· Management reported that the company experienced a notable decline in market share during 1HCY24, attributed to a trend favouring higher horse-power tractors not fully addressed by Al-Ghazi’s current product offerings.
· Company plans to launch an 85hp tractor line later this year to meet market demand. Ongoing product development also aims to expand the range to include tractors with horsepower greater than 85, ensuring the company’s portfolio meets the needs of corporate farming. Furthermore, the company intends to tap the export market, which was overlooked in previous years.
· Management aims to increase its market share in the latter half of the year by capitalizing on sales opportunities from the Green Tractor scheme introduced by the Punjab Government.
· As per management, board has proposed a PkR10bn investment for the comprehensive upgrade of plant equipment and enhancement of vendor product quality.
Courtesy – AKD Research
