Nishat Chunian Ltd (NCL) has reported an unconsolidated NPAT of PKR0.72bn in 4QFY22 (EPS: PKR3.00), down 70% YoY and 65% QoQ, owing to significant margin attrition to the tune of 10.4ppt/5.3ppt YoY/QoQ, missing our EPS of PKR6.63. This took FY22 EPS to PKR31.10, up from an EPS of PKR23.32, last year. The result is accompanied with a dividend payout of PKR4.0/sh (IMS estimate of PKR5.0/sh), taking FY22 payout to PKR7.0/sh.

Key highlights for 4QFY22:

Revenue clocked in at PKR14.8bn, up 12% from previous year and broadly in-line with our expectation. Higher sales of the Spinning segment (both local and export sales of yarn) were the key contributor, in our view. We highlight that the Spinning segment revenues generated c.60% of revenues in 9M.

Gross margin has declined by 10.4ppt YoY to 16.5%, lower than our expected margin of 21.8%, likely owing to normalizing cotton inventory gains. We also suspect margins of the Weaving segment and the Home Textile segment to have declined further during the quarter.

Distribution expenses are up 69% compared to last year to PKR507mn, owing to the sharp rise in sales. Admin expenses are up 151% YoY to PKR306mn. We await detailed accounts for further clarity on this.

Among other line items: i) other income has clocked in at PKR503mn (from negligible levels last year), likely due to significant exchange gains, ii) finance costs have increased by 69% YoY, amid greater borrowings and higher borrowing rates, and iii) effective tax rate has clocked in at 32% (IMS estimate of 18%).

Despite the earnings miss, NCL’s continued growth in revenues and healthy profitability are encouraging. However, amid potential slowdown in overall export orders, revenue growth is likely to soften, whereas, margins will continue to normalize. We have a Buy rating on NCL with a TP of PKR62/sh, accompanied with FY23E dividend yield of 12%. We look to revisit our estimates post-availability of annual accounts.

Courtesy – Intermarket Securities Limited.