MTL: Increase in cost pressures amid diminishing volumes, HOLD
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We revisit our investment case of MTL where we have revised down our Jun-19 price target PT to PKR 754/Share. Our PT implies a downside of 14.2% along with a dividend yield of 10.6%. The stock is valued rich and trading at PER of 9. 4x based upon strong dividend pay-outs history. We recommend ‘HOLD’.
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We expect the company’s bottom-line to grow by 6.2% per annum during FY19-23 on the back of 1) diffident growth in sales volumes 2) unsustainability of current historic high gross margins of above 20%. We expect margins to come under pressure owing to PKR devaluation and rising steel & other commodity prices. We expect sales volume to grow meagerly by 4% per annum during FY20-23.
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We anticipate sale volumes to decline by 16% YoY in FY19 owing to 1) budgetary cuts of PSDP 2) water scarcity due to short rainfall, 3) no expectations of any agriculture relief package by the government 4) expected slowdown in the economy and 5) falling loan disbursement to agriculture sector for growing crop.
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EPS for FY19 is estimated to clock in at PKR 93.13/share, down 23% YoY on the back of 16% YoY volumetric decline in sales. We expect the company to declare final dividend of PKR 93.00/share during the period of FY19.
Millat Tractors is engaged in the assembly and manufacture of agricultural and industrial tractors, implements and multi-application equipments including diesel generating sets, forklift trucks, prime movers and other related products. Co. is organized into three business units: the Tractor segment, which deals with assembling and manufacturing of agricultural tractors, implements and multi-application products; the Equipment and Parts segment which is engaged in the business of manufacturing of automotive, agricultural and industrial vehicles parts and components; and the Castings segment, which is engaged in manufacturing of castings for tractors and automotive parts.
Akseer is a Research & Analytics firm based out of Pakistan that specializes in Equity Research and Corporate Finance. Our team has exposure to a wide range of sectors including Economy, Banking, Telecommunications, Retail, Real Estate, Construction and Materials, Pharmaceuticals, Food, Energy, Chemicals and Petrochemicals. We have experience of covering companies in Middle East, Americas, Far East and South Asia.
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