Pakistan’s Corporate Profits Rise by 8.8% Despite Economic Issues

The profitability of the KSE-100 index has held up nicely in the financial year so far, posting Rs. 877.6 billion in after-tax income in 9MFY23, up 8.8 percent YoY from Rs. 806.8 billion in 9MFY22.

The benchmark index posted a growth of 12.7 percent year-on-year (YoY) in 3QFY23, earning Rs. 353 billion during the quarter.

Barring the impact of super tax, growth could have been higher since PBT jumped up by 19.6 percent YoY in 3QFY23 and 15.7 percent YoY in 9MFY23, according to Arif Habib Limited (AHL).

9 Months: Banks Run the Show While Bears Hurt Fertilizer Sector

The earnings jump in 9MFY23 was led by an astonishing 43 percent growth in the index-heavy Commercial Banks sector to Rs. 303 billion, owing to a striking increase in interest rates; however, the PBT growth was much more impressive at 53.6 percent as the bank booked a heavy super tax charge during the year, which shrunk PAT growth.

This was followed by another heavyweight, the Oil and Gas Exploration sector (+49.2 percent YoY to Rs. 312 billion) given higher oil prices, and exchange gains booked amid PKR depreciation. The cement sector also posted an impressive jump of 27.4 percent in earnings to Rs. 27.6 billion in lieu of higher retention prices and the use of cheaper coal from Afghan and local markets during the year, which offset the impact of volumetric decline (-18 percent YoY), hike in energy tariff as well as PKR depreciation.

The profitability of the Chemical sector surged by 43.1 percent YoY mainly due to a one-off gain booked by Lucky Core Industries Limited (LCI and formerly ICI Pakistan Limited) on the sale of NutriCo Morinaga (Excluding one-off gain, the sector profitability would have declined by 10 percent YoY). Lastly, the Technology sector posted a PAT of Rs. 3.5 billion as compared to LAT of Rs. 6.7 billion during the same period last year.

Sectors that remained laggards in 9MFY23 include the Fertilizer sector (-13.9 percent YoY to Rs. 63 billion) primarily due to dismal results by the FFBL amid exchange and inventory losses alongside super tax impact on the sector. The 73.5 percent YoY drop in earnings of the Oil and Gas Marketing sector (Rs. 20 billion) was due to massive inventory losses across the board and the absence of penal income during the period.

The power sector posted a loss after tax of Rs. 1.9 billion as KEL posted a loss in 9MFY23. The steel (Engineering) sector came under pressure as margins were slashed due to LC issues and high input (scrap and HRC) prices, PKR depreciation, and augmented energy tariff, as well as an increase in borrowing costs (interest rate hikes), which eroded the PAT by 56.6 percent YoY to Rs. 4.2 billion.

While the Refinery sector earnings dropped by 6.5 percent YoY to Rs. 7.5 billion due to a massive loss posted by Cnergyico PK Limited. The automobile sector posted a loss after tax of Rs. 7.7 billion as the sector continues to struggle amid CKD import restrictions and demand erosion.

Q3

Profitability during 3QFY23 posted a growth of 12.7 percent YoY to Rs. 353 billion attributable to a jump in earnings of index-heavy sectors. Impressive results were posted by Commercial Banks (+53.0 percent YoY in 3QFY23) given a massive surge in net interest

income.

This was followed by Oil and Gas Exploration sector (+60.2 percent YoY) led by PKR depreciation and hefty exchange gains, and

Cement sector (+35.7 percent YoY) due to augmented retention prices and use of cheaper coal from neighboring and local markets.

Moreover, the Steel sector also posted a 43.1 percent YoY uptick in earnings to Rs. 2.8 billion amid better margins. Lastly, the textile sector managed to post profitability growth of 31.5 percent YoY mainly due to the outstanding result of Interloop Limited.

Whereas other sectors succumbed to high-cost pressures and/or volumetric decline and exchange losses which eroded margins, such as the Oil and Gas Marketing sector (-51.8 percent YoY), Automobile (loss of Rs. 7.1 billion vs. profit during SPLY), Pharmaceutical (-81.1 percent YoY), Refinery (-41.7 percent YoY).

On a sequential basis, KSE-100 index earnings posted a QoQ surge of 30.3 percent, led by Banks (+21.8 percent QoQ) primarily due to higher interest rates. Oil and gas exploration PAT rose by 60.5 percent QoQ owed to massive exchange gain amid currency depreciation. This was followed by growth in the Chemical sector given a one-off gain booked by LCI.

Lastly, textile and steel sector profitability surged by 597 percent and 34x QoQ as ILP and ISL profitability recovered which were in the negative territory during the last quarter.

On the flip side, the Fertilizer sector posted an earnings decline of 42 percent QoQ amid losses booked by FFBL. The technology sector also posted a LAT of Rs. 5.2 billion amid PTC losses. Likewise, the Power sector posted LAT pf Rs. 0.4 billion amid KEL losses even excluding that profitability would have gone down by 17 percent given the insurance claim booked by HUBC during the last quarter.

During 9MFY23, the KSE-100 index went down by -3.7 percent (-1,540 points). The Pharmaceuticals sector remained the worst-performing sector, eroding 449 points followed by Automobile (-388 points), Food (-318 points), Banks (-286 points), Chemicals (-268 points), and Cement (-201 points). Whereas key gainers were Technology and Communication (801pts), Power (+498pts), Eand P (+325pts), and Fertilizer (+316pts).

On a sequential basis, during 3QFY23 the KSE-100 index went also down by -1.0 percent (-420 points). The Technology and Communication sector remained the worst-performing sector, eroding 163 points followed by OGMCs (-163 points), Food (-158 points), and Pharmaceuticals (-129 points). However, the Fertilizer sector added 327 points to the index followed by Banks (+256 points), Power (+225 points), and Eand P (+168 points).

Source: Pro Pakistani