Poor Farm Economics Weighing on Millat Tractors Sale

Topline Securities has downgraded Millat Tractors Limited (MTL) from HOLD to SELL. It warns that poor farm economics and flood-related disruptions will continue to weigh on tractor sales despite fresh government support schemes.

Topline has downgraded its previous HOLD stance on Millat Tractors (MTL) to SELL as we expect the sale of tractors to remain subdued amidst floods, despite the likely 20,000-unit tractor scheme by Provincial/Federal Government during FY26. The current price of MTL, Rs563, translates into FY26E and FY27F PE of 19.4x and 13.1x, respectively.

Our recommendation on MTL is based on DCF, suggesting a Dec 2026 target price of Rs425/share, resulting in a potential total downside of 18%, incorporating the 6% dividend yield,” Topline said.

Tractor sales in FY25 touched a 22-year low: Despite the 9,500-unit tractor scheme by Punjab Government, the tractor sales in FY25 touched a 22-year low to 29,192 units amidst poor farm economics as wheat prices fell from Rs3,373/40kg in Jun 2024 to Rs2,603/40kg in Jun 2025.

Tractor sales in FY26E to rise 16%, backed by 20k Punjab Tractor Scheme, still 53% low than peak achieved in FY10: During FY26, we expect tractor sales to increase by 16% to 34k units as a result of the 20,000 units tractor scheme launched by the Punjab government in FY26.

After adjustment for scheme from both FY25 and FY26, the tractor sales are likely to show a decline of 30% to ~14k units in FY26. MTL commands 60-65% market share in the industry. This will take its unit sales to ~22k units in total tractor sales of 34k units, we believe. For FY27, we have assumed industry growth of 30% where tractor sales will clock in at ~44k units, with MTL’s share estimated at ~28k units.

Floods likely to weigh on purchasing power of farmers: Taking cue from previous floods, in FY11 floods, the tractor sales fell 3% in FY11 and 28% in FY12, before stabilizing in FY13. Post 2022 floods, tractor sales fell by 48% in FY23, while recovering sharply in FY24. This previous trend suggests, overall sales are likely to remain dismal.

Earnings expected to clock in at Rs29/share and Rs43/share in FY26E and FY27F: We expect the company to post earnings of Rs29/43/share in FY26E/FY27F. We expect the company to pay a DPS of Rs29/43 in FY26E/27F.MTL withdraws increase in prices of tractors

Valuation: We have used DCF-based valuation for MTL core operations, suggesting a price of Rs379/share, while we value its other businesses using market multiple/BV approach, reaching ~Rs46/share, taking the total target price to Rs425/share, suggesting a downside of 18% (adjusted for dividend yield of 6%).

Key Risks to our thesis includes (1) non-materialization or delay in tractor scheme, (2) lower than expected market share of MTL in tractor scheme, and (3) PKR depreciation.