Nishat Mills Ltd (NML) has reported an unconsolidated NPAT of PKR4.2bn (EPS: PKR11.81) in 1QFY23, up 26% YoY, while more than triple that of the previous quarter. We estimate core-textile operations to have clocked in at PKR9.0/sh, up 29% YoY. The 1Q result came in significantly higher than our expected EPS of PKR3.75, largely owing to higher-than-estimated gross margins and revenues.     

Key observations:

Revenue has clocked in at PKR34.3bn (highest quarterly sales), up 41% YoY, higher than our expectation of PKR30.0bn, due to strong growth in the weaving and processing segment sales.  

Gross margin has remained flat YoY, but has increased by a sharp 8ppt QoQ to 19.4%. This is significantly higher than our estimated margin of 12.0%. The flat YoY margin is likely due to improvement in processing segment margins owing to better prices for orders being rerouted to Pakistan and hefty exchange gains.

Distribution and admin expenses are up 48% YoY (similar with the rise in sales), which can partially be attributed to higher transportation costs, in our view.

Other income has clocked in at PKR1.5bn, up 52% YoY (IMS estimate of PKR1.0bn), likely due to dividends received from unlisted associate companies.

Finance cost has nearly tripled compared to the previous year to PKR832mn, due to an increase in short-term borrowings and interest rates. Effective tax rate of 13% came in lower than our estimate of 25%, likely due to greater exports. 

NML has posted an impressive core-result, owing to the massive improvement in gross margin and revenue growth. We believe that the sales momentum and margins for NML is likely to be sustained in the ongoing quarter. Also, ongoing capacity expansions are likely to improve revenues. We have a Buy stance on NML (TP of PKR94/sh).

 Courtesy – Intermarket Securities Limited.