Nishat Chunian Ltd (NCL) has reported an unconsolidated net loss of PKR0.1bn in 1QFY23 (LPS: PKR0.54), slipping into losses for the first time since the pandemic, compared to an EPS of PKR9.23 last year and PKR3.00 in the previous quarter. The result was considerably below our estimated EPS of PKR3.45, owing to lower-than-expected margins and other income.

Key highlights for 1QFY23:

Revenue clocked in at PKR15.3bn, up 3% YoY and slightly higher than our estimated revenue of PKR14.9bn. Higher sales of the Spinning segment likely led to an increase in revenue.

Gross margin has declined by 11.1ppt YoY/5.3ppt QoQ to 11.2%, lower than our expected margin of 13.8%, likely owing to a further moderation in Spinning segment and Home Textile segment margins.

Distribution expenses are up 32% compared to last year to PKR471mn, despite flattish sales. Admin expenses are up 130% YoY to PKR100mn. We await detailed accounts for further clarity on these.

Among other line items: i) other income has clocked in at PKR117mn, likely due to exchange gains, and ii) finance costs have increased by 136% YoY, amid greater borrowings and higher borrowing rates.

This is a significantly weak result from NCL (only Textile Company in the IMS Textiles Universe to post a loss so far). A potential slowdown in overall export orders, and in local Spinning segment sales owing to closures of various small mills, will likely soften the revenue growth in the coming quarter. Margins are likely to moderate further in light of the recent decline in international cotton prices, in our view.

We retain our Neutral stance on NCL with a TP of PKR38/sh.

Courtesy – Intermarket Securities Limited.