Karachi, September 05, 2022 (PPI-OT): TGL: Plant closure to trim 4QFY22E earnings
We present earnings preview for Tariq Glass Limited (TGL) for 4QFY22 where we expect the company to post an EPS of Rs7.3, down 18% QoQ. Alongside the result, we also expect the company to announce a DPS of Rs14 (FY22E: 40% payout ratio).
We expect earnings to sequentially decline as we project gross margins to decline from 32% in 3Q to 25% during 4QFY22 over lower volumes in the float glass segment and fading inventory gains. Upside to our expectations may stem from higher-than-expected glass prices during the quarter.
Though float line 1 is expected to remain offline for most part of 1HFY23, we reiterate plant closures for repair and maintenance are expected to restrict growth momentum to some extent in the near future. The stock trades at FY23E/24F P/E of 5.9/4.3, respectively.
4QFY22: EPS to decline 18% QoQ
We present earnings preview for Tariq Glass Limited (TGL) for 4QFY22 where we expect the company post an EPS of Rs7.3, down 18% QoQ, led by (1) plant closure of its float line, (2) trimmed margins and (3) higher finance costs. This is expected to take full year EPS to Rs35.2, up 130% YoY. Alongside result, we also expect the company to announce a DPS of Rs14 (FY22E: 40% payout ratio).
Net sales to expand, margins may contract
Volumes of the float glass segment are expected to dip QoQ as the company’s float line 1 has been shut down since Apr-2022 for major six-month repair work. As one of the company’s tableware furnace came back online with an increased capacity of 200TPD towards the end of Feb-2022, this may somewhat dilute the impact of lower float glass volumes during the quarter. To recall, the furnace had been closed for major repair from Dec-2022 to Feb-2022.
Net sales of the company are expected to clock in at Rs7.2bn up 7% QoQ as a result of aggressive price hikes undertaken by the company to mitigate the impact of escalation in production costs as much as possible. To recall, the company is dependent upon RLNG and FO (whichever is cheaper at the time) for production, both of which have seen a drastic YoY rise of 142%/112%, respectively. Having said that, we expect margins to trim to 25% during 4QFY22 as a result of lower volumes in the float glass segment and fading inventory gains.
Outlook
Going forward, plant closures for repair and maintenance are expected to restrict growth momentum to some extent in the near future, a major key risk to our investment thesis is the rising fuel cost, as more than one third of the direct costs pertain to fuel expenses.
In the medium term, declining cement dispatches, anticipated limited pricing power and higher finance costs are expected to keep profitability of the next couple of quarters in check. Declining oil prices is a key upside to our base case projections. The stock trades at FY23E/24F P/E of 5.9/4.3, respectively.