Intermarket Pulse: MTL: Significant margins accretion improves earnings outlook; Buy
- We reiterate a Buy rating on MTL with a new Jun’17 TP of PkR1,311/sh (total return 25%). Our new estimates do not include contribution from any Auto venture. We lift our FY17/18F EPS by 35%/40% on the back of impressive sales outlook, improved margins, and better cash conversion cycle.
- MTL posted consolidated 2QFY17 EPS of PkR25.91 led by 43% YoY increase in volumetric sales and margin accretion (up 330 bps QoQ to 28%) as a result of better sales of high-margin 75HP tractors amid increased demand from the construction sector – a recurring theme, in our view.
- MTL announced its intention to explore possibilities to participate in a consortium including Hyundai Motors Company. MTL’s stake could be significant, in our view, where our channel checks suggest MTL already has a dormant Light Truck assembly line, which could be used for this venture. We await further clarity and granular details from management before incorporating this in our estimates.
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.
Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.
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