Millat Tractors (MTL) reported a consolidated NPAT of PKR2.4bn (EPS: PKR 12.80) in 1QFY24, up 4.5x YoY and 92% QoQ. The result was slightly higher than our expected NPAT of PKR2.3bn (EPS: PKR12.05), primarily due to lower-than-expected finance costs.

Key result highlights for 1QFY24:

§ Net Sales were up ~3x YoY and 49% QoQ to PKR22.6bn – in-line with estimates. The sequential rise in revenue is primarily due to a 48% increase in sales volume

§ Gross margins showed a QoQ decline of approximately 2.8ppt but a YoY improvement of 3.9ppt, reaching 23.4%. This was below our expected gross margins of 24.7%. The sharp QoQ decline in margins is likely due to PKR volatility. .

§ Finance costs saw a 54% decrease QoQ but increased by 42% YoY to reach PKR281mn, an improvement over our anticipated finance cost of PKR643mn. This is likely a result of the rapid reduction in short-term borrowings, but we are awaiting detailed financials for further clarification.

§ Among other line items; (i) distribution expenses have doubled QoQ/YoY owing to a 48% QoQ and 71% YoY rise in unit sales respectively, and (ii) effective tax rate clocked in at 38% in 1QFY24 versus 27% in SPLY.

MTL reported strong revenues this quarter, primarily due to robust sales volumes. Although gross margins have declined, we anticipate a potential recovery in the upcoming quarter, given the strengthening of PKR against the US$. Moreover, favorable agriculture crop yields are expected to sustain sales volumes in the future. We maintain a NEUTRAL stance on the stock, considering its already impressive 56.08% year-to-date return (adjusted for bonuses) based on Tuesday’s closing price.

Courtesy – Intermarket Securities Limited.