AKD Securities Limited – NML and NCL: 1HFY15 Results Reviews

Karachi, February 24, 2015 (PPI-OT): NML has posted unconsolidated NPAT of PkR1.54bn (EPS: PkR4.38) in 2QFY15 vs. NPAT of PkR2.28bn (EPS: PkR6.49) in 2QFY14, down by 32%YoY. However, 2QFY15 results were above AKD Securities Limited’s projected NPAT of PkR1.28bn (EPS: PkR3.64), with the deviation due to higher ‘other income’, which clocked in at PkR1.50bn (17% above AKD Securities Limited’s expectations). As a result, 1HFY15 earnings settled at PkR1.94bn (EPS: PkR5.52) vs. NPAT of PkR3.85bn (EPS: PkR10.96) in 1HFY14, down by 50%YoY.

2QFY15 result highlights included: (i) 4%YoY reduction in top-line on the back of tepid demand, (ii) 5%YoY increase in COGS despite lower cotton prices, (iii) hefty 720bps YoY reduction in GMs to 11.6% and (iv) 19%YoY increase in the ‘other income’. Regarding the latter, management has stated this largely reflects just dividend income.


NML: Profit and Loss Account
PkR (mn) 1HFY15 1HFY14 YoY 2QFY15 2QFY14 YoY 1QFY15 QoQ
Net sales 26,710 28,088 -5% 13,932 14,509 -4% 12,778 9%
COGS 23,700 22,859 4% 12,313 11,779 5% 11,387 8%
Gross Profit 3,010 5,229 -42% 1,619 2,730 -41% 1,391 16%
Operating expenses 1,824 1,835 -1% 895 948 -6% 929 -4%
Other expenses 141 286 -51% 56 137 -59% 85 -34%
Operating Profit 1,045 3,109 -66% 668 1,645 -59% 378 77%
Other income 1,999 1,931 4% 1,504 1,259 19% 495 204%
EBIT 3,044 5,040 -40% 2,172 2,904 -25% 872 149%
Financial charges 1,004 829 21% 532 446 19% 472 13%
PBT 2,040 4,211 -52% 1,640 2,458 -33% 400 310%
Tax 100 358 -72% 100 177 -44% – n.m
PAT 1,940 3,853 -50% 1,540 2,281 -32% 400 285%
EPS 5.52 10.96 -50% 4.38 6.49 -32% 1.14 285%
Gross margins 11.3% 18.6% 11.6% 18.8% 10.9%
Net margins 7.3% 13.7% 11.1% 15.7% 3.1%
Source: Company Accounts and AKD Research

NCL has posted unconsolidated NPAT of PkR0.56bn (EPS: PkR2.82) in 2QFY15 vs. NPAT of PkR1.04bn (EPS: PkR5.21) in 2QFY14, down by 46%YoY. 2QFY15 results were way above AKD Securities Limited’s projected NPAT of PkR0.4bn (EPS: PkR1.98), with the difference due to better than expected gross margins of 9.2% against AKD Securities Limited’s estimation of 7.9%. As a result, 1HFY15 earnings settled at PkR0.33bn (EPS: PkR1.63) vs. NPAT of PkR1.27bn (EPS: PkR6.33) in 1HFY14, down by 74%YoY.

2QFY15 result highlights included: (i) 10%YoY reduction in top-line on the back of better orders and low base, (ii) 10%YoY increase in COGS despite lower cotton prices, and (iii) improvement of margins on quarterly basis (7.6% in 1QFY15), and maintenance on yearly basis (9.2% in 2QFY14).


NCL: Profit and Loss Account
PkR (mn) 1HFY15 1HFY14 YoY 2QFY15 2QFY14 YoY 1QFY15 QoQ
Sales 11,301 10,611 7% 5,991 5,445 10% 5,310 13%
Cost of sales 10,344 9,406 10% 5,440 4,947 10% 4,904 11%
Gross profit 957 1,205 -21% 551 498 10% 406 36%
Selling expenses 360 297 21% 204 143 43% 156 31%
Admin expenses 92 76 20% 52 46 13% 40 31%
Operating profit 505 832 -39% 294 310 -5% 211 40%
Other expenses 45 89 -50% 43 54 -19% 1 3676%
Other income 686 1,153 -40% 774 1,070 -28% (87) n.m
Finance cost 691 621 11% 382 327 17% 309 24%
PBT 457 1,274 -64% 643 999 -36% (186) n.m
Tax 131 7 1648% 79 (44) n.m 52 50%
PAT 325 1,267 -74% 564 1,043 -46% (238) n.m
EPS 1.63 6.33 -74% 2.82 5.21 -46% (1.19) n.m
Gross margins 8.5% 11.4% 9.2% 9.2% 7.6%
Net margins 2.9% 11.9% 9.4% 19.2% -4.5%
Source: Company Accounts and AKD Research

AKD Securities Limited continues with AKD Securities Limited’s preference for NML over NCL, on the back of its higher value added segment presence and well diversified portfolio. High prior inventory holdings likely eroded the impact of falling cotton prices in 1HFY15. That said, benefits should accrue in terms of higher margins in 2HFY15 for both the companies, with portfolio holdings to also provide impetus from dividend income. NML trades at a FY15F P/E of 9.9x where AKD Securities Limited’s Jun’15 TP of PkR172/share offers 35% upside with a Buy stance. While AKD Securities Limited’s current TP for NCL is PkR45.7/share, AKD Securities Limited looks to revisit AKD Securities Limited’s investment case for NCL post release of detailed accounts.

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