On Feb 22, Tractors Limited (MTL) announced the financial result for 2QFY22 whereby it declared a net profit of PKR 1,712mn (EPS: PKR 25.45), up by 14% YoY / 30% QoQ from PKR 1,503mn (EPS: PKR 22.34) / PKR 1,317mn (EPS: PKR 19.58). This lead to a jump in 1HFY22’s profitability of 15% YoY to PKR 3,030mn (EPS: PKR 45.04). Alongside the result, the company declared a dividend of PKR 45.00/share (2QFY21: PKR 50.00/share).

Result Highlights

· During 2QFY22, net sales of the company surged by 43% YoY / 47% QoQ to PKR 14.65bn, attributable to an impressive jump in volumetric sales (to 10,057 units; +21% YoY / +40% QoQ) coupled with increased tractor prices.This translated to 1HFY22’s sales of PKR 24.59bn, up by 31% YoY due to aforementioned reasons.

· For the period under review, gross margins declined by 393bps on a QoQ basis to 16.9%, mainly owing to increased cost pressure, due to inflated raw material cost (mainly flat steel prices) as well as PKR depreciation.

· During 2QFY22, other income stood at PKR 339mn, up by 71% YoY and 37% QoQ due to higher interest income on short term investments together with dividend income from its subsidiaries.

· That said, MTL booked effective taxation at 25.1% in 2QFY22 as compared to 28.6% in SPLY.

Recommendation

· We recommend ‘BUY’ stance on MTL based on Dec’22 target price of PKR 1,153.0/share.

Courtesy – AHL Research