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MTL - FY23 Analyst Briefing Takeaways, (AKD Off the Analyst's Desk Nov 23, 2023)

AKD, Off the Analyst's Desk

MTL - FY23 Analyst Briefing Takeaways,

 

MTL (Millat Tractors Ltd.) held its corporate briefing to apprise investors/analyst about FY23 financial performance and future outlook. Following are the key highlights of the briefing:

 

• To recall, company posted earnings of PkR18.5/sh in FY23 vs. PkR30.6/sh SPLY. The decline in earnings was majorly because of drop in sales, lower gross margins and higher financial charges.
• In terms of volume, MTL's sales declined to 18,622 units compared to 35,005 units in the previous year (a 47%YoY decrease). This reduction in sales aligns with an industry annual decline of 48% in the same period, maintaining the market share at 60% compared to 59% in the same period last year. The overall decrease in demand was mainly due to the diminished purchasing power of farmers resulting from floods.
• Management highlighted that the sales mix is shifting from Low Horse Power (LHP) tractors to High Horse Power (HHP) tractors. The HHP total market share has increased to over 30% from 15-20% previously.
• Management mentioned that the average localization in terms of volume stands at 92% (LHP 96%; HHP 90%), with the remaining being imported. In terms of value, localization is approximately 90%.
• On the exports front, volumetric sales have grown to 1,659 units compared to 453 units in FY22. The company exports to African countries and Afghanistan, with a current-year target of exporting 1,500-2,000 units to Afghanistan.
• Looking ahead, management expects total sales for the year to be around 26-30k units. Moreover, there is a low-interest rate scheme for farmers on tractor purchases until Dec’23, and ~60% of the current demand is through banking loans.
• Regarding the government's corporate farming plans, management stated that most tractors used for this plan are above 100HP (Meanwhile, MTL products 50-85HP tractors) and would be imported. While some demand is expected from this side, it won't have a significant impact.
• Furthermore, MTL has increased its short-term borrowing recently due to a growing working capital requirement resulting from pending sales tax refunds from the government (~PkR5.0bn).
• On the recent presidential order, management stated that the case pertaining to accusation of charging sales tax amounts on sales after Jun’23 (sales tax exempted in Federal Budget FY24), was in favor of the company.
• Meanwhile, an FBR audit on the alleged sales tax fraud case (in the period FY17-22) is still ongoing, as directed by FTO in Feb’23.
• On its investment in Hyundai Nishat Motors (MTL’s holding: 15.86%), management is very bullish and informed investors that despite challenging times for the auto sector, the company is profitable and they anticipate dividends upon the maturing of the project.