Karachi, January 28, 2022 (PPI-OT): Pakistan Textile: NML and NCL Result Previews

NML – 1HFY22 earnings to clock in at PkR20.6/sh: We expect Nishat Mills Limited (NML) to post NPAT of PkR3.9bn (EPS: PkR11.2) during 2QFY22, up by 19.7%QoQ. This will take cumulative earnings during 1HFY22 to PkR7.2bn (EPS: PkR20.6) as compared to earnings of PkR1.8bn (EPS: PkR5.0) during 1HFY21, inflating by a whopping 307.6%YoY. The rise in earnings is attributed to i) expansion in weaving segment coming online during the quarter, ii) improvements in yarn margins, which improved 12%QoQ during 2QFY22, iii) robust export order book where country’s textile exports grew by 5%YoY in volumetric terms during 1HFY22 and iv) hefty currency depreciation during the quarter. Consequently, we expect gross margins to expand sequentially during 2QFY22 to ~20%.NML is our top pick from the sector with a TP of PkR129/sh. NML has lost 17% of its market capitalization since the beginning of this fiscal year and is currently trading at a P/E of 2.8x – a valuation completely unjustified.

NCL – 1HFY22 earnings expected at PkR19.7/sh: Nishat Chunian Limited (NCL) is expected to announce 2QFY22 earnings of PkR2.5bn (EPS: PkR10.5), a sequential increase of ~14%QoQ. This will take the cumulative profitability of the company during the period to PkR4.7bn (EPS: PkR19.7). Just like NML, company’s profitability growth will be driven by improving core operations where i) 12%QoQ improvement in yarn prices, ii) 8% depreciation in PkR and iii) cotton procurement at attractive rates are likely to keep the profitability buoyant during 2QFY22 and beyond. Non-core income is likely to remain depressed as the dividend income from subsidiary NCPL has remained muted throughout the period owing to soaring circular debt situation. However, we may see some positive development on the subject matter as NCPL received first tranche of receivable settlement recently and may make a payout in coming quarters. We have a buy call on the scrip with a TP of PkR65/sh. NCL has lost 5% of its market capitalization since the beginning of this fiscal year and is currently trading at a P/E of 1.6x.