Millat Tractors’ Profit Declines By 31% in First Half of FY25

Millat Tractors Limited (PSX: MTL) announced its 1HFY25 financial results wherein it posted a profit after tax of Rs. 3.6 billion (EPS of Rs. 19.01), down 31 percent YoY vs Rs. 5.2 billion (EPS of Rs. 27.36) in 1HFY24. For 2QFY25, the company recorded a profit of Rs. 3 billion (EPS of Rs. 15.86), up 3 percent YoY. On a QoQ basis, earnings significantly increased by 434 percent. According to Topline Securities, gross margins have clocked in at lower than industry estimates and were compensated by tax reversal. Gross margins recorded at 25.4 percent in 2QFY25, down by ~350bps on a QoQ basis despite higher sales. This decline in gross margins is likely due to higher sales under low priced/value Govt. scheme. The company has recorded a tax reversal of Rs. 67 million in 2QFY25. Net sales increased by 149 percent QoQ to Rs. 19.5 billion in 2QFY25 owing to a 194 percent increase in unit sales to 7,541 units due to the Green Tractor Scheme launched by the Government of Punjab. In the last quarter, sales were lower as the company was facing operational difficulties due to SRO 563(1)/2022 and the imposition of a 10 percent sales tax in Budget FY25, which was piling up sales tax refunds. Distribution expense increased by 58 percent QoQ due to an increase in overall sales. Similarly, other expenses have increased by 724 percent QoQ due to higher WPPF and WWF charges amidst higher profitability levels. Alongside the result, the company also announced a dividend of Rs. 45/share, higher than expected as in our view company has announced a cleared previous backlog of dividends as a merger transaction was in process. MTL is currently trading at an FY25/26F PE of 14.22x and 9.46x respectively.