Dear Clients,

– Nishat Mills Limited (NML) announced its half yearly result posting earnings of PkR1.8bn (EPS: PkR5.0) during 1HFY21 as compared to PkR1.9bn (EPS: PkR5.4) in the same period last year, down 6% Y/Y. The result is in line with our expectations.

– NML’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 87bps Y/Y to 11.4% in 1HFY21 as cotton prices increased.

– NML’s other income declined by 10% Y/Y due to lower dividend income from power subsidiaries.

– During 2QFY21, the company reported profit of PkR828mn (EPS: PkR2.4) as opposed to PkR968mn (EPS: PkR2.7) in corresponding period last year, down 14%Y/Y.

– The decrease in profitability is attributed to 27% Y/Y reduction in other income due to absence of dividend income from power subsidiaries.

– The company managed to keep gross margins stable at 11.4% in 2QFY21 despite increase in cotton prices due to efficient procurement strategy of cotton.

– Sequentially, the company’s topline improved 7% as NML received hefty orders in home textile segment.

– We have an Outperform stance on NML with a TP of PKR157/sh that provides a decent upside of 38%. The scrip offers dividend yield of 5%. The stock is currently trading at a forward PER of 8.8x.

Regards,
KASB Research