Karachi, November 25, 2021 (PPI-OT): MTL: Analyst briefing takeaways

Millat Tractors Limited (MTL) held its analyst briefing session today to discuss its FY21 and 1QFY22 results. To recall the company posted unconsolidated NPAT of PkR5.78bn (EPS: PkR85.9) in FY21, swelling by +169%YoY. In the latest quarter, the earnings have depicted growth of 16%YoY to stand at PkR1.3bn (EPS: PkR19.6).

In FY21, the company sold 35,527 tractors, depicting a growth of 70%YoY while the market share stood at 70%. In 4MYFY22, the company has sold 10.7k units, growing by 5%YoY. Among the total sold volumes, ~45% of the contribution was from bigger tractors (more than 60HP) while ~55% of the contribution was from smaller tractors (less than 60HP).

According to the management, the affordability of the farmers this is year is higher than the previous years due to bumper yields in crops. This may ignite another wave of tractors sales in upcoming months. To capitalize on the growing market, the company plans to increase its product range by introducing 100HP tractors for bigger farm sizes.

The company expects the export sales to remain under pressure in FY22 as the trade activities with Afghanistan are currently under a halt.

The tractor industry is currently being charged a GST of 5% which may be increased to 17% in near future to meet the conditions of IMF. This may adversely impact the volumes of MTL. In addition to this, the hike in interest rates is also expected to slow down the demand for overall industry in upcoming months.

The localization level of MTL currently stands at 92%, however, the company is still exposed to foreign exchange risk since the base raw materials of the localized parts are mostly imported.

In regards to the discussion about investment in Hyundai Nishat Motors, the management expects fruitful results from this strategic investment when the Hyundai brand matures in Pakistan. The global shortage of semiconductor chips, however, is currently hindering the growth of the company.