Millat Tractors Limited (MTL) reported a consolidated NPAT of PKR3.2bn (EPS: PKR16.61) in 2QFY24, up 30% QoQ and 25.5x YoY. The result was higher than our expected EPS of PKR15.41, primarily due to higher-than-expected gross margins. This result takes 1HFY24 NPAT to PKR5.6bn (EPS: PKR29.40) up 8.4x SPLY. The result was accompanied by a DPS of PKR25 higher than our estimated figure of PKR23.

Key highlights from 2QFY24:

Net Sales were up 2.6x YoY and 5% QoQ to PKR23.6bn. The sequential rise in revenue is primarily due to higher tractor prices and better sales during the quarter. We had estimated net sales of PKR 25.5bn

Gross margins improved by 4.8ppt QoQ and 9.1ppt YoY, reaching 28.2%. This is higher than our expected gross margins of 23.9%, possibly due to the better-than-expected realization of tractor prices during the quarter.

Other income saw a notable surge of 85% QoQ and 3.5x YoY to reach PKR357mn in line with our estimates. The significant increase is due to higher cash balances during the quarter.

Among other line items, (i) finance cost plummeted by 31% QoQ and 53% YoY, owing to reduced reliance on short-term borrowings, and (ii) effective tax rate clocked in at 42% in 2QFY24 versus 60% SPLY.

MTL maintains strong profitability fueled by robust sales volumes. While the initial surge in volumes observed since the beginning of FY24 tapered off towards the end of 2QFY24, a notable 34% MoM increase in January suggests sustained strength in volumes for the rest of the year. We uphold a Neutral stance on the stock with a target price of PKR616/sh.

Courtesy – International Securities Limited