Al-Ghazi Tractors (AGTL) reported a 1QCY24 NPAT of PKR853mn (EPS: PKR14.72), up a strong 3.7x YoY, while remaining flat QoQ. The result was much lower than our projected EPS of PKR26.05 as both revenues and gross margins came in lower than expected.

Key Highlights for 1QCY24:

• Net revenues were recorded at PKR9.5bn (surging 2.3x YoY), up 13% QoQ, driven largely by an 11% QoQ volume increase. Higher contribution from lower engine-capacity (HP) tractors may have resulted in this deviation, in our view
• GMs of 22.2%, up 7.1ppt YoY but down 1.9ppt QoQ. The YoY improvement is due to higher tractor prices; however, the sequential decline in margins despite PKR appreciation is surprising. We await detailed financials for further clarity.
• Finance costs were PKR50mn, down 26% Year over Year and 79% Quarter over Quarter, mainly due to lower short-term borrowings.
• Among other line items: i) other income clocked in at PKR32mn, down 73% YoY and 81% QoQ, possibly due to deleveraging leading to reduced cash balances; and ii) effective tax rate was recorded at 33%, same as last year.

AGTL’s margin contraction in this quarter, akin to MTL’s results, suggests that the sector is grappling with cost pressures, notwithstanding the improvement in the PKR-USD rate. Nevertheless, AGTL’s margins persist at a commendable 22.2% compared to a 5-year average of 19.5%, mitigating these concerns. Sales volumes remain robust, buoyed by strong agricultural growth, yet the sector remains susceptible to the unpredictable impacts of climate change. We maintain a Neutral stance on the stock with a TP of PKR501/sh.

Courtesy – IMS Research