Sazgar’s Profit Grows by Nearly 370% in 1HFY25

Sazgar Engineering Works Limited (PSX: SAZEW) posted a profit after tax of Rs. 6.6 billion for July-December FY25, up 369 percent compared to the same period last year. Its 2QFY25 earnings clocked in at Rs. 2.4 billion (EPS of Rs. 29.83), reflecting a 218 percent YoY increase but a 43 percent QoQ decline. According to Topline Securities, results fell short of industry expectations, likely due to the company shifting most of its December sales to January 2025. A major deviation was observed in net revenues, which were expected to reach Rs. 20 billion for the December quarter but came in at Rs. 18.4 billion. However, this still marks a 2.8x YoY increase. The release of half-year accounts will provide clarity on four-wheeler sales figures for December 2024. The company announced a dividend of Rs. 10/share for 2QFY25, bringing the 1HFY25 payout to Rs. 20/share. Gross margins stood at 28.35 percent in 2QFY25, compared to 28.94 percent in 1QFY25 and 24.79 percent in 2QFY24. The slight QoQ decline in gross margins is attributed to lower sales. The effective tax rate rose to 43 percent in 2QFY25, up from 36 percent in 1QFY25 and 39 percent in 2QFY24, bringing the 1HFY25 effective tax rate to 39 percent. The company recorded a significant decline in both three and four-wheeler sales in 2QFY25 due to the year-end effect. Four-wheeler sales fell 26 percent QoQ to 1,936 units (with 350 units assumed for December 2024) from 2,605 units in 1QFY25. Three-wheeler sales declined 3 percent QoQ to 5,264 units (887 units assumed for December 2024) from 5,435 units in 1QFY25. Distribution expenses surged 189 percent YoY and 4 percent QoQ to Rs. 768 million, while admin expenses increased 62 percent YoY and 10 percent QoQ to Rs. 135 million in 2QFY25. Other income rose 211 percent YoY but declined 17 percent QoQ to Rs. 333 million. SAZEW is currently trading at a FY25F/26F PE of 4.2x and 3.4x, respectively.