Nishat Mills (NML): Potential Accumulation Opportunity

NML is trading at a low P/E ratio below 4. And its price to book is at absurd level. Its book value per share is around four times of its market price. 

In addition to core earnings from its vertically integrated textile operations, Nishat Mills also benefits from substantial investment income generated by its portfolio of listed and unlisted securities.

One of its most notable holdings is DG Khan Cement (DGKC), in which NML holds over 31% of shares. The resurgence in cement demand and rising profitability in the sector are expected to boost DGKC's market price, increasing the value of NML's investment portfolio.

Furthermore, NML has a low weighting in major PSX indices. It has a small weight in the KSE100 Index and is not currently included in the KSE30. However, it has recently been added to the KMI30 index, that would be effective from June 14, 2024. That should boost the stock’s demand for inclusion in shariah compliant portfolios.

NML has underperformed the market rally. Compared to the over 70% rise in the KSE100 Index in one year, NML stock has only returned 13%. This suggests potential for NML to catch up. 

The recent weakness in price can be attributed to lower profits in the last quarter. This has created a buying opportunity.

See NML Valuation Note

Nishat Mills Hit by Cost Pressures Despite Strong Revenue Growth in Q3

NML | Nishat Mills Limited

Earning Release Q3-Mar 2024

For the quarter ending March 2024;

• NML reported a loss after tax of Rs. 285.8 million, compared to PAT of Rs. 3,300 million last year.
• The loss per share came out at Rs. 0.81 for the quarter. Last quarter EPS was Rs. 9.4.
• NML did not announce any cash dividends along with the results announcement. Note that over the course of the last one year, NML has distributed a total of Rs. 5 per share as cash dividends.

On a 9-month basis, NML announced a PAT of Rs. 5,348 million, compared to a PAT of Rs. 11,136 million in the same period last year.

To provide historical context to the earnings, note that on a twelve-month trailing basis, NML has recorded a profit after tax of Rs. 6,378 million, compared to a profit after tax of Rs. 9,964 million last year, registering a decline of 52%.

Analysis of Profit & Loss

To better comprehend changes in profit and loss in this quarter over last year, note that,

> the revenue increased by 16.7% in this quarter, compared to last year, and the gross profit margin decreased to 9% from 13% last year, resulting in a -20.8% decrease in gross profit, amounting to Rs. 1010.2 million.

> Other Income decreased by 30.1%, impacting the P&L negatively by an amount of Rs. 1,030 million, compared to last year.

> Financial charges increased by 41.5% in this quarter, affecting  the P&L by an amount of Rs. 871.7 million compared to last year.

This resulted in a profit before tax of Rs. 706.3 million for the quarter, which was  lower by 82.2% over last year.

Finally, in terms of taxation, NML booked a tax of Rs. 992.1 million, which was  higher by an amount of Rs. 318 million compared to last year. Last year, it had booked a tax of Rs. 674.1 million.

So in sum, in this quarter ending March 2024, NML sustained a loss after tax of Rs. 285.8 million for the quarter compared to a PAT of Rs. 3.3 billion in the same quarter last year.

Primarily a very cost pressures resulted in this substantial decline in profit despite close to 20% increase in the revenues. The directors' report notes that.." This exceptional growth was driven by favorable quantity and rate variances. However, the unprecedented rise in cost of production, especially energy expenses due to withdrawal of various subsidies, led to a substantial declined in gross profit." Read the Directors' report.

Market Performance

NML is trading at a market price of Rs. 70.4, with a price-earnings ratio of 3.9 and a price-to-book ratio of 0.2.

NML has a dividend yield of 7.1% on a twelve-month trailing basis.

In the last 52 weeks, the NML stock reached a high of Rs. 86.24 and touched a low of Rs. 54.1.

Over the past 6 months, NML returns have been 1%, compared to the 34% return of the KSE100 Index. And over the past year, NML returns have been 27%, compared to the 74% return of the KSE100 Index.

Market Cap & Index Weighting

Currently, NML has a market cap of Rs. 24,753 million. NML has no weighting in PSX indices.

Nishat Mills (NML) holds 31% stake in DG Khan Cement (DGKC).

Download: NML third-quarter announcement.