IMS Research has published an important report on Millat Tractors Ltd (MTL), focusing particularly on the fourth quarter of FY25. Initial impressions indicate that weak sales volumes are putting pressure on profitability during this period. Recently, Millat Tractors reported a consolidated net profit after tax (NPAT) of PKR 1.33 billion (earnings per share: PKR 6.69), reflecting a significant 39% decline year-over-year, although it remained flat quarter-over-quarter, which aligns broadly with our estimates.
This brings the total NPAT for FY25 to PKR 6.32 billion (EPS: PKR 31.70), marking a 41% decrease compared to the previous year. The results also included a healthy dividend per share (DPS) of PKR 15, exceeding expectations, attributed to better working capital management and a slower-than-anticipated reduction in short-term borrowings.
Key highlights from the FY25 fourth quarter include:
– Net sales totaled PKR 12.47 billion, a decrease of 47% year-over-year (flat quarter-over-quarter), consistent with our estimates. The year-over-year decline was primarily due to a 43% drop in sales volumes, driven by weak farm economics following changes in government crop procurement policies and the elimination of support prices.
– Gross margins improved by 2.6 percentage points quarter-over-quarter to 25.3%, demonstrating the company’s strong pricing power despite downturns in the agriculture sector, which experienced minimal growth of only 0.6% in FY25, the lowest in nine years.
– Finance costs remained flat year-over-year at PKR 598 million, despite a 72% increase in short-term borrowings, thanks to a 9.5 percentage point decrease in interest rates.
– The company reported an effective tax rate of 29%, compared to 47% in the same period last year.
MTL’s results highlight a weakened rural economy, with this trend likely continuing into FY26, as volumes fell 15% year-over-year in the first two months of FY26 due to floods that have impacted rural purchasing power. Despite the flooding, we expect sales volumes to remain subdued, although Punjab’s 20,000-tractor scheme may provide some support. However, a shift towards lower-horsepower, more affordable tractors could pressure margins and sales in the near term. Consequently, we maintain a Neutral stance on the stock with a target price of PKR 590 per share.
Courtesy – IMS Research
