Karachi, February 20, 2023 (PPI-OT): NML and OGDC: 2QFY23E Result Previews

NML – 2QFY23 earnings expected at PkR9.4/sh: Nishat Mills Limited (NML) is expected to report its 2QFY23 earnings later today, wherein we expect the company to post NPAT of PkR3.3bn (EPS: PkR9.4) for the quarter, lower by 21%QoQ and higher by 42%YoY. The sequential decline in the company’s profitability in 2QFY23 can be attributed to the 6%QoQ decline in the topline, expected to come in at PkR32.2bn for the three-month period. Our expectations of lower net sales during the quarter are driven by a drop in export orders during 2QFY23, with the PBS data indicating a 9.8%QoQ decline in export proceeds for the textile group.

Furthermore, the exchange rate remained relatively stable at ~PkR223/US$ during the quarter. We anticipate the company to post gross margins of 18.6% for the quarter, slightly lower than the 19.4% posted in the earlier quarter and substantially higher than the 12.7% reported in the SPLY. Further bottom line attrition can be expected due to heightened finance costs during the period, wherein we expect the company’s financial charges to come in at PkR948mn, 14% higher than the earlier quarter.

OGDC to report earnings of PkR 8.66/sh for 2QFY23: Oil and Gas Development Company Limited (OGDC) is scheduled to release its 2QFY23 earnings on Wednesday, wherein we expect the company to post NPAT of PkR37.30bn (EPS PkR8.66), changing by -30%/+6% on a QoQ/YoY basis. The said decline in bottom line on a quarterly basis is majorly attributable to slightly lower oil and gas production from Nashapa ((Downward) 7%QoQ) due to maintenance job at SNGPL pipeline in Peshawar.

Furthermore, lower oil prices compared to the previous quarter (15%QoQ) and no expectations of exchange gains (previous quarter: PkR11.2bn) has also abetted in a lower bottom line. For this reason, we expect OGDCL’s topline during the quarter to end at PkR101.1bn, changing by -4.7%/+27% on QoQ/YoY basis. Dry well expenses during the quarter are expected to clock in at PkR3.8bn, on account of Shahpurabad-1 (OGDCL stake: 50%) and Sundha Thal-1 (OGDCL stake: 50%), taking total exploration expenses to PkR5.77bn (up 273%/25% on QoQ/YoY) during the period. Alongside the earnings, we expect the company to announce a cash dividend of PkR2.00/sh. We have a Buy rating on the stock, with a Dec’23 TP of PkR136/sh, representing an upside potential of 44% from last close.