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Pakistan Tractors: Rising Profits, Budget could be the next triggers

• We expect IMS Tractor universe to post consolidated NPAT of PkR2.53bn for Mar’16 quarter on a cumulative basis, driven by volumetric growth of 36/84% on QoQ/YoY basis.

• Our EPS estimates for the quarter are as follows: MTL (PkR36.95, up 46% QoQ) and AGTL (PkR15.45, up 92% YoY). The phenomenal growth in earnings is a result of robust tractor demand amid lower tractor prices and improved agricultural output.

• The next big trigger for the sector is likely to be the pro-agricultural measures taken by GoP in the budget which could include (i) tractor scheme, (ii) direct subsidy on tractors, (iii) removal of remaining 5% GST on tractors and (iv) Relief/subsidy on agricultural output. These measures are likely to be an additional impetus for tractor demand in the country.