Millat Tractors Limited (MTL) announced its 2QFY26 result today, wherein the company recorded unconsolidated profit of Rs2.4bn (EPS of Rs12.06), down 21% YoY but up 4.7x QoQ, according to Topline Pakistan Research. The result exceeded expectations due to stronger-than-expected gross margins.

Alongside the results, the company announced a cash dividend of Rs 20/share in 2QFY26 (1HFY26 payout: 137%), which is higher than expectations.

Gross margins surged to 35% in 2QFY26 as compared to 25% in 2QFY25 and 27% in 1QFY26. This takes 1HFY26 gross margins to 33%, up from 27% in 1HFY25.

Net sales increased by 7% YoY and 2.8x QoQ to Rs20.9bn. The strong QoQ growth was driven by higher tractor sales of 6,335 units, up 2.9x QoQ.

This takes 1HFY26 tractor sales to 8,512 units, down by 16% YoY. To highlight, sales are mainly supported by the Punjab Government’s Green Tractor Scheme; in its absence, volumes would have been lower.

Distribution expenses increased by 29% YoY and 2.1x QoQ due to an increase in tractor sales.

The company’s finance cost decreased by 27% YoY and 15% QoQ in 2QFY26, mainly due to a decline in short-term borrowing to Rs9.1bn in Dec-25, compared to Rs17.3bn in Sep-25 and Rs14bn in Jun-25.

The company recorded a tax expense of Rs2,953mn in 2QFY26, resulting in an effective tax rate (ETR) of 55%, significantly higher than the expected 39%, compared to a tax reversal of Rs67mn in 2QFY25. This takes the 1HFY26 ETR to 53%, up from 7% in 1HFY25.

MTL is currently trading at FY26E/27F PE multiples of 18.7x/12.9x.