Millat Tractors Limited (MTL) announced its 2QFY25 result today, wherein the company recorded a profit of Rs3bn (EPS of Rs15.86), up 3% YoY. On QoQ basis, earnings significantly increased by 434%. This takes 1H2025 earnings to Rs3.6bn (EPS of Rs19.01), down 31% YoY vs Rs5.2bn (EPS of Rs27.36) in 1H2024.

Though earnings were largely in line with expectations, gross margins were lower than our estimates, and tax reversal compensated for this. Gross margins recorded at 25.4% in 2QFY25, down by ~350bps on QoQ basis despite higher sales. We attribute this decline in gross margins to higher sales under a low-priced/value Govt. scheme.

§  Company has recorded tax reversal of Rs67mn in 2QFY25, we await further clarity.

§ Net sales increased by 149% QoQ to Rs 19.5bn in 2QFY25, owning to a 194% increase in unit sales to 7,541 units due to the Green Tractor Scheme launched by the Government of Punjab. In the last quarter, sales were lower as the company faced operational difficulties due to SRO 563(1)/2022 and the imposition of a 10% sales tax in Budget FY25, which was piling up sales tax refunds.

§  Distribution expense increased by 58% QoQ due to increased overall sales. Similarly, other costs have increased by 724% QoQ due to higher WPPF and WWF charges amidst higher profitability levels.

§  Alongside the result, the company also announced a dividend of Rs45/share, higher than expected. In our view, the company has cleared the previous dividend backlog as a merger transaction was in process.

§  MTL is currently trading at a FY25/26F PE of 14.22x and 9.46x respectively.

Courtesy – Topline Pakistan Research