Nishat Mills Earnings Disappoint: Lower Sales and Higher Taxes Impact Profits

Lahore: Nishat Mills Limited (NML) reported a less-than-expected financial performance for the fourth quarter of fiscal year 2025, with earnings per share (EPS) at Rs3.34. This marks a 15% increase year-on-year, but falls short of industry predictions. The company’s profit for 4QFY25 stood at Rs1,174 million, compared to Rs1,021 million in the same period last year.

The shortfall in expectations can be attributed to a combination of lower-than-anticipated sales and a steep effective tax rate. Although net sales increased by 9% compared to the previous year, they decreased by 4% quarter-on-quarter, totaling Rs43 billion for the quarter. Analysts await further details to understand the specifics behind the sales figures.

NML faced an effective tax rate of 49% in 4QFY25, which mirrored the previous year’s rate but was significant enough to impact the bottom line. This elevated tax rate equaled 2.54% of the company’s turnover.

Notably, gross margins improved slightly to 11.0% in the latest quarter from 10.5% in both 4QFY24 and the preceding quarter, providing some buffer against declining earnings. Nevertheless, other income dropped by 15% year-on-year though it rose 20% from the prior quarter, reaching Rs2.2 billion primarily due to dividends from subsidiaries.

Distribution expenses climbed 30% year-on-year and 7% quarter-on-quarter, further straining the company’s financials. For the entire fiscal year, NML’s earnings totaled Rs6.0 billion (EPS: Rs17.10), a 6% decrease from Rs6.4 billion (EPS: Rs18.11) in FY24.

Despite an 11% increase in net sales and a slight improvement in gross margins from 10.8% to 11.2% over the year, operating profits dropped by 10%. Higher operating expenses and reduced other income were key contributors to this decline. A 19% reduction in finance costs provided some relief, yet a 7% increase in taxation led to an overall 6% reduction in profit after tax for the year.

NML declared a cash dividend of Rs2.0 per share, reflecting a payout ratio of 11.7%, down from 16.6% in the previous year, and falling short of market expectations. Currently, the company is trading at projected price-to-earnings ratios of 9.1x for FY26E and 7.9x for FY27F.