Outlook on Nishat Mills Limited (NML) along with recommendation for the investors.
Earning to decline in FY15 but would recover in FY16
We expect company to post drop in earnings growth of 24% to Rs 4.17 billion (EPS: Rs 11.89) in FY15 against Rs 5.51 billion (EPS: Rs 15.68) in FY14. This is primarily expected owing to rising energy cost, sharp appreciation of PKR, lower sales, hike in financing cost and substantial decline in other income.
Currency appreciation drags top line
We expect NML net sales to drop by 4% Rs 52.53 billion in FY15 compared to Rs 54.44 billion in FY14 likely due to currency appreciation and poor performance of spinning sector. Spinning segment revenue likely to fall by around 14% due to lower prices expected of yarn prices.
Lower cotton prices required lower working capital
We expect lower cotton prices of around Rs 5,300/maund would be positive for the company as it would require less working capital which ultimately resulted into higher sales in the future. We expect prices would remain in the range of Rs 5,000 -6,000/maund in FY15. This will standardize gross margins to historical levels of around15% in the future.
Dividend Income likely to support bottom-line
Nishat mills Ltd has a major portfolio investment in his group companies like DG. Khan cement Limited, MCB Bank Limited, Nishat Power Limited, Lalpir, Pakgen Power Limited & Nishat Chunian. As per financial results FY14, dividend income contributes Rs 2,948 million (81% of total earning) which is expected to surge to Rs 3,036 million in FY15. In term of contribution in dividend income in FY15, MCB Bank expected to contribute by 34% followed by NPL by 31%.
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