Gul Ahmed Textile Mills (GATM) has reported consolidated NPAT of PKR0.5bn (EPS: PKR0.74) for 2QFY24, down 34% YoY but flat QoQ. This takes 1HFY24 total consolidated NPAT to PKR1.0bn, down 50% YoY. The 2QFY24 result is higher than our estimated NPAT of PKR0.3bn (EPS: PKR0.45) with the deviation stemming primarily from higher-than-expected GMs and lower operating costs.

Key highlights for 2QFY24:

Revenue clocked in at PKR41.2bn, up 36% YoY but down 3% QoQ (in-line with our estimate of PKR43.1bn). The sequential decline in revenue is primarily attributable to lower home textile and spinning exports.

Gross margins of 16.4% were lower by 2.9ppt YoY but up 0.6ppt QoQ. GMs improved sequentially due to lower realized cost of cotton inventory despite higher fuel and power costs due to unstable gas supply and gas tariff hike during 2Q. We had estimated gross margins at 15.2%.

Operating costs increased 10% YoY but declined 3% QoQ to PKR3.9bn. The decline could be due to lower textile exports leading to lower shipping and freight charges, in our view.

Other Income came in at PKR308mn, down 64% YoY and 49% QoQ – attributed to lower exchange gains and markup income from loans and advances.

Finance cost remained elevated at PKR2.2bn, up 36% YoY but flat QoQ. This is likely due to elevated ST-borrowings amid elevated interest rates, denting overall profitability.

Effective tax rate was recorded at 44.5% versus 47.0% SPLY – but slightly higher than our estimated ETR of 40.0%.

Earnings continue to trend lower YoY because of subdued export demand, along with surging energy prices and elevated interest rates. Any further hike in gas tariff will create additional burden on the gross margins while a potential delay in interest rate cuts will keep finance cost elevated. We have a Neutral stance on the scrip with a June 2024 TP of PKR25/sh.

Courtesy – IMS Research