– Nishat Chunian Limited (NCL) announced its half yearly result posting earnings of PkR1.4bn (EPS: PkR5.6) during 1HFY21 as compared to PkR522mn (EPS: PkR2.2) in the same period last year, up 2.6x Y/Y. The result is above our expectations.
– The deviation comes from higher than anticipated other income that clocked in at PkR548mn in 1HFY21.
– NCL’s topline registered a double digit growth of 19%Y/Y because of higher demand as a result of diversion of orders to Pakistan amid pandemic.
– The company’s gross margins saw a contraction of 120bps Y/Y to 11.5% in 1HFY21 as cotton prices increased.
– During 2QFY21, the company reported profit of PkR873mn (EPS: PkR3.6) as opposed to PkR349mn (EPS: PkR1.5) in corresponding period last year, up 150%Y/Y.
– The growth in profitability was led by i) 14% Y/Y growth in topline, ii) 161% Y/Y surge in other income and iii) reduction in finance cost due to lower interest rate by 35% Y/Y.
– Sequentially, the company’s margins expanded by 170bps attributed to better yarn margins in the period under review as yarn prices increased by 13%QoQ.
– We have an Outperform stance on NCL with a TP of PKR64/sh that provides a decent upside of 28%. The scrip offers dividend yield of 5%. The stock is currently trading at a forward PER of 6.4x.