Al-Ghazi Tractors (AGTL) reported a 4QCY23 NPAT of PKR829mn (EPS: PKR14.30), declining 16% QoQ but improving from a loss incurred last year. This brings the CY23 EPS to PKR45.06, reflecting a 21% YoY increase. However, the reported EPS fell short of our estimated PKR15.65, primarily due to lower-than-expected sales and higher finance costs. The company did not announce dividends, contrary to our expected DPS of PKR40/sh.

Key Highlights for 4QCY23:

Net revenues were recorded at PKR8.4bn, up a sharp 4.6x YoY (down 26% YoY). The YoY growth was driven by a 3.3x jump in sales volumes and higher tractor prices. We expected net revenues of PKR9.1bn, orders booked previously at lower prices may have led to this deviation, in our view.

AGTL posted GMs of 24.1%, up 6.0ppt YoY and 3.2ppt QoQ, due to higher tractor prices and a stable exchange rate during the quarter. We expected GMs of 19.4%.

Finance costs amounted to PKR242mn, a 319% QoQ decrease attributed to the removal of short-term borrowings in the previous quarter. Increased reliance on borrowings during 4QCY23 may explain the variance from our estimated finance cost of PKR23mn.

Among other line items: i) Other income clocked in at PKR171mn, up 372% YoY and 176% QoQ, mainly due to improved cash balances, and ii) effective tax rate was 40% compared with 52% SPLY.

AGTL’s recent report presents a mixed picture, while improved margins are promising. The absence of dividends despite healthy cash balances from the previous quarter hints at potential uncertainty regarding future profitability. Pakistan’s agricultural sector continues to outperform the rest of the economy, with expectations of sustained tractor sales fueled by a robust wheat harvest in the coming months. We maintain a Neutral stance on the stock with a TP of PKR501/sh.

Courtesy – Intermarket Securities Limited.