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The country's leading tractor manufacturer, Millat Tractors Limited (PSX: MTL) began its humble journey in 1964 to introduce and market Massey Ferguson tractors in Pakistan. It set up an assembly plant in 1967 to assemble tractors imported in semi-knocked down condition. Since then, Millat has become Pakistan's leading engineering concern in the automobile sector, involved in the manufacture of tractors, diesel engines, forklifts, and a wide range of agricultural implements. The company has a market capitalisation north of Rs58.8 billion.

With a 60 percent market share, Millat Tractors enjoys market leadership in tractors in Pakistan. The company has been listed in Forbe's list of Asia's Best 200 under a Billion Dollar companies, and was recently declared the second-best company of Pakistan by PSX in 2016.

Stock price & Pattern of shareholding MTL stock remained below the KSE100 index during 4QFY16 as well for the first quarter of FY17. However, the stock skyrocketed from September onwards, as the company delivered a better performance over its miserable last year. With the inking of new deals and the firm's new direction to focus on exports, MTL stock is soaring high and is the comeback story of the year.

Around 40 percent of MTL stock is in the hands of the public, though there are no foreign investors. Moreover, apart from State Life Insurance, no other corporation or public sector entity holds any shares. The associated companies are all part of Millat and account for a minute percentage of shareholding, and the owners of the company hold around 30 percent.

Prior performance Millat's top line and profitability have fluctuated greatly over the years. To some extent, this can be explained by the fluctuating GST regime on tractors; the other factor being the state of the agriculture economy of Pakistan. Unit tractor sales have seen a general declining trend over the years, with the recent FY16 being one of the worst years in the tractor industry's history, making the six-year sales CAGR -6.22 percent.

During the year, low commodity prices and poor crop production hurt the farmers' purchasing powers, while botched tractor schemes from the Punjab and Sindh governments warded off potential buyers. The year saw Millat having to shut down production and lay off some of its workers.

Moreover, Millat Tractors earns around 95 percent of its revenues from tractors, so even though the company deals in implements and other multi-application products, it reports its sales under a single segment and does not have much diversification in this regard.

Millat recently began focusing on its exports, inking an agreement with AGCO Corporation for trademark licensing and export of whole goods and parts in 2015. It also secured itself as a distributor in Afghanistan in FY16. This focus on exports was much needed, as the numbers suggest that the company's exports have been on a downtrend, not just in absolute terms but also as a percentage of total revenues. Moreover, given the recent beating it took in the local market, some export destinations were much needed.

Recent performance As bad as the past year was for Millat Tractors, the company has made a huge comeback in FY17. For the half-year ended, sales are up 78 percent year-on-year, while costs were managed, giving a 154 percent increase in gross profit. The bottom line has almost tripled over last year.

At the start of the fiscal year, the sales tax on tractors was reduced from 10 percent to 5 percent. This has been one of the main demand drivers for tractors during the period. For the half-year ended, Millat has sold 67 percent more tractors than it did last year.

As per the Director's Report, increased credit expansion, fertiliser subsidy, higher production of kharif crops, and improvements in energy supply were all positive factors during the period under review.

Finally, as mentioned earlier, the company has started exports to Africa and Middle East as part of its agreement with AGCO. As per the Director's Report, Millat's products are being very well received due to their competitive price and quality.

Outlook As per the half-yearly Director's Report, Millat Tractors has recently launched its new emission-compliant engines in partnership with Stanadyne Corporation USA, and has entered a club of emission-compliant engine manufacturers. This will help the company penetrate global markets that have been thus far inaccessible due to international emission standards.

With the ongoing lower GST, the absence of distortions in the market, slightly improved agricultural output over last year, fertiliser subsidy, and improvement in agricultural credit, Millat is having a great year so far. Going forward, the exports are likely to give a nice push to the company's financials, as it looks to grow its international footprint.





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Pattern of Shareholding

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Shareholders Category Percentage of holding

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Directors, CEO, their spouses and minor children 29.79%

Associated Companies, Undertakings & Related Parties 2.05%

MTL Employees Welfare Trust 0.09%

MTL Provident Fund Trust 1.14%

MTL Gratuity Fund Trust 0.82%

Executives/Workers 1.03%

Public Sector Companies & Corporations 4.62%

State Life Insurance Corporation of Pakistan 4.62%

Banks, DFIs, Non-banking Financial Institutions 0.79%

Insurance Companies 5.30%

Modarabas 0.01%

Mutual Funds 1.24%

General Public (Local) 40.42%

Others 6.19%

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Source: Company accounts





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Millat Tractors Limited

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Rs (Million) 1HFY17 1HFY16 YoY

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Net Sales 11,543 6,470 78%

Cost of Sales 8,923 5,440 64%

Gross Profit 2,621 1,030 154%

GP Margin 23% 16% up 680 bps

Distribution & Marketing Expenses 283 136 108%

Administrative Expenses 216 214 1%

Other Operating Expenses 160 59 171%

Other Income 266 170 56%

Operating Profit 2,227 792 181%

Finance Cost 0 9 -100%

Taxation 647 212 205%

Net Profit 1,580 572 176%

NP Margin 14% 9% up 490 bps

EPS 35.66 12.91 176%

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Source: company accounts

Copyright Business Recorder, 2017


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