BMA Capital report on Nml fy15 earnings preview

1. BMA Capital Management Ltd. 801 Unitower, I.I.Chundrigar Road, Karachi, 74000, Pakistan For further queries, please contact:
bmaresearch@bmacapital.com or call UAN: 111‐262‐111
This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. While the information contained
herein is from sources believed reliable, we do not represent that it is accurate or complete and should not be relied upon as such. Opinions
expressed may be revised at any time. This memorandum is for information only and is not an offer to buy or sell, or solicitation of any offer to buy
or sell the securities mentioned.11
1
We expect Nishat Mills Limited (NML) to announce full year FY15 earnings of PKR3.82bn
(EPS: PKR10.9) which is 31%YoY lower than PKR5.51bn (EPS: PKR15.68) in FY14. The
announcement is going to accompany a cash dividend of PKR4.0/sh. The decline in
earnings is likely to come about as a result of i) 3%YoY decline in the top‐line which is
likely to clock around PKR52.98bn, ii) decline in core margins on back of lower retention
rates and iii) 21%YoY higher finance cost on back of higher ST borrowings. The one time
higher taxation expense due to super tax is likely to dent the bottom‐line further. On a
QoQ basis, the sales are likely to pick on the back of improvement in PKR/EUR parity
which improved 3% since its nadir in Mar’15 and improvement of core margins. Lower
fuel and power costs are also likely to result in better gross margins where we expect
the margins to clock around ~14.7% during 4QFY15. The finance cost is also likely to
remain suppressed, despite increased ST borrowings, on back of easing DR. The other
income of the company is likely going to be robust in 4QFY15 on back of higher payout
from the subsidiaries which will support the bottom‐line further. Our TP of NML
currently stands at PKR154/sh, offering an upside of 27% on the last closing.
Lower EUR restricting sales growth: We expect the sales of the company to clock around
PKR52.98bn in FY15 depicting a decline of 3%YoY from PKR54.44bn it clocked in FY14. The
decline in sales is due to a ~18%‐23% decline in retention rates of different value added
items as the lower prices of cotton lead to a knock‐on effect on the prices of the value
added items and a ~14%YoY decline in average PKR/EUR parity in FY15. On QoQ basis
however, the sales are likely going to pick up ~9% to clock around PKR13.69bn as EUR
posted a recovery of 3% from its nadir and the seasonal factor kicked in.
Fuel adjustments; providing relief to margins: Given 26%YoY decline in FO prices and
NML’s heavy dependence FO for its power requirements, the fuel and power cost of the
company is likely to remain muted thus supporting the company’s gross margins. We
expect the company’s full year fuel and power cost to clock around PKR5.13bn in FY15,
~5%YoY lower than PKR5.4bn it clocked in FY14.
Other income: Other income of the company is likely going to clock around PKR3.36bn in
FY15 which is 8%YoY lower than PKR3.65bn clocked in FY14. The lower other income
realized in FY15 is on the back of lower payout from its subsidiary companies mainly PKGP
and LPL
Investment perspective: We continue to highlight NML as our top pick from the textile
sector with a TP of PKR154/sh, thus offering an upside of ~27% on the last closing.
However, we advise the investors to keep a close eye on the development in EU region,
specially Greece debt crises and gas price hikes before building a position.
Financial Summary
(PKR mn) 4QFY15 3QFY15 FY15 FY14
Sales 13,699 12,572 9.0% 52,980 54,444 ‐2.7%
Gross Profit 2,008 1,673 20.0% 6,691 7,864 ‐14.9%
Other Income 850 515 65.1% 3,364 3,653 ‐7.9%
PAT 1,136 740 53.7% 3,815 5,513 ‐30.8%
EPS 3.23 2.10 53.7% 10.85 15.68 ‐30.8%
Source: BMA Research
Nishat Mills Limited (NML)
FY15 Earnings Preview
BUY
Target Price: PKR 154
Current Price: PKR 121
NML Performance
1M 3M 12M
Absolute % 4% 13% 8%
Relative to KSE % 0% 4% ‐11%
Bloomberg NML.PA
Reuters NISM.KA
MCAP (USD mn) 417
12M ADT (USD mn) 1.6
Shares Outstanding (mn) 352
Source: BMA Research
Jehanzaib Zafar
jehanzaib.zafar@bmacapital.com
+92 111 262 111 Ext: 2065
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Thursday July 23, 2015