NML’s earnings update: Should investors buy on margin pressure?

Nishat Mills Ltd (NML) announced its financial results for the third quarter of fiscal year 2025 (3QFY25), delivering standalone earnings of PkR 696 million (EPS: PkR 1.98). This marks a significant turnaround from a loss of PkR 286 million (LPS: PkR 0.81) in the same period last year (SPLY). Despite returning to profitability, the results fell short of market and analyst expectations, primarily due to lower-than-anticipated gross margins.

Revenue and margins

NML’s revenue increased 5% year-on-year (YoY) to PkR 45.3 billion, up from PkR 43.3 billion in 3QFY24. This growth was largely driven by higher export volumes and improved pricing, with readymade garment exports rising 13% YoY, according to the Pakistan Bureau of Statistics (PBS).

Gross margins improved to 10.4% from 8.9% a year ago, supported by better export prices and a reduction in power costs, thanks to lower coal prices and decreased grid tariffs. However, despite this improvement, margins remained below the levels expected by analysts, leaving some uncertainty about cost management efficiency.

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Expenses and other income

Distribution expenses rose modestly by 3% YoY to PkR 2.0 billion, reflecting higher export volumes and associated costs. Administrative expenses increased by 13%, reaching PkR 762 million, which partly weighed on the overall profitability.

Other income dropped sharply by 23% YoY to PkR 1.8 billion, mainly due to lower interest income on loans to subsidiaries as interest rates fell.

Finance costs fell significantly by 36% YoY to PkR 1.9 billion, helped by an 891 basis points decline in average KIBOR rates. This easing of borrowing costs helped offset the negative impact of a 23% increase in total borrowings.

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Taxation and bottom line

The company’s effective tax rate surged to 63%, influenced heavily by turnover tax in a period of relatively lower profitability. This contributed to the net profit after tax (NPAT) of PkR 696 million, which is down from PkR 5.3 billion reported in the first nine months of FY24, representing a 10% YoY decline.

Nine-month performance and outlook

For the nine months ended March 2025 (9MFY25), Nishat Mills posted earnings of PkR 4.8 billion (EPS: PkR 13.76), down from PkR 5.3 billion (EPS: PkR 15.21) in the same period last year.

Despite the near-term challenges, AKD Securities Limited maintains a ‘BUY’ rating on Nishat Mills with a target price of PkR 187 per share by December 2025. their positive outlook is supported by:

• Expected earnings growth driven by recovery in textile exports and improving retention prices.
• Continued decline in finance costs supporting profitability.
• Attractive valuation, as the stock currently trades at a 56% discount to its portfolio value, presenting a compelling buying opportunity.

Key takeaway:

While Nishat Mills returned to profitability in 3QFY25, margin pressures and higher taxes held back stronger earnings growth. However, a recovery in textile exports, improved pricing, and declining finance costs support a positive medium-term outlook. Investors should consider NML as a buy for value and growth potential ahead.

Source: AKD Securities Limited

⚠️ This post reflects the author’s personal opinion and is for informational purposes only. It does not constitute financial advice. Investing involves risk and should be done independently. Read full disclaimer →