Karachi, February 25, 2021: Gul Ahmed Textile (GATM) announced unconsolidated earnings of Rs1.2 billion (EPS: Rs2.73) for 2QFY21, up 66 percent YoY due to increase in revenues by 32 percent YoY and other income by 12x YoY. Earnings in 1HFY21 is also up by 65 percent YoY to Rs1.8 billion (EPS: Rs4.13).
Alongside results, the company also notified the exchange that board has authorized management to reformulate (carve out) its local business segment (IDEAS) into a wholly owned subsidiary. This may possibly lead to listing of this retail chain IDEAS, we believe.
To note, IDEAS generates EBITDA of ~Rs2.0-2.5 billion annually and at EV/EBITDA of 8-10x, the business can be valued at ~Rs17-21 billion. Adjusting for working capital (Rs2 billion), we estimate equity value of IDEAS to be around Rs15-19 billion (61-80 percent of GATM’s market cap).
Revenues have gone up robustly (+32 percent YoY & 12 percent QoQ) during the 2QFY21 as the factory was running at full utilization amidst strong order book from foreign clients. Momentum is likely to continue as new capacity in spinning segment will come online in 4QFY21.
Gross margins improved by 0.6ppt QoQ despite PKR appreciation of ~4 percent during 2QFY21.
Operating costs have witnessed a major increase of 22 percent YoY, attributable to increasing selling and distribution costs because of high export sales volume.
Other income increased by 12x YoY due to recognition of gain on GIDC liability to the tune of ~Rs289million (total Rs633million), as per our checks.
In our recent call with management, the company shared revenue targets of Rs85/100 billion for FY21/22.
