Discretionary companies outperform in 1Q2021

May 18, 2021 (MLN): Pakistan's consumer companies witnessed an upsurge in profitability by 98% YoY during 1Q2021 while 80% YoY in 4Q2020.

During 1Q2021, Consumer Discretionary, Staples and Pharmaceuticals segments performed exceptionally well with the mounting profits by 2.7x YoY, 95% YoY, and 46% YoY, respectively, as per report by Topline research.

Along with the bottom line, the top line of these companies experienced a rise of 37% cumulatively during 1Q2021. The improvement in overall revenue was a result of higher prices and restoration of economic activity when compared to the country-wide lockdown situation during the last week of March 2020.

Discretionary firms took the lead, where revenues increased by 69% YoY in 1Q2021 primary due to an increase in volumetric sales of PAEL (appliances and power division) and car manufacturers by 42% YoY and 76% YoY, respectively.

At the same time, the consumer firms witnessed a decline in gross margins by 1.1ppts YoY to 35.9%, led by INDU (-2.9ppts YoY), THALL (-0.7ppts YoY) and PAEL (-0.1ppts YoY) due to an increase in raw material and logistics costs. However, the gross margins of PSMC increased by 2.9ppts YoY to 6.1%.

Going by the report, staples firms remained the second most profitable consumer companies during the period under review as all posted growth in their topline except BATA. Overall sales of staple soared by 24% YoY in 1Q2021. Staples’ sales growth was mainly led by UNITY that posted a 108% YoY increase in volumetric sales. Meanwhile, revenues of NESTLE (largest in research’s sample size with a weight of 23%) increased by 8% YoY during the quarter.

BATA reported a decline of 9% in topline due to lower volumetric sales amid the closure of schools, the report highlighted.

Nonetheless, the stable position of domestic currency and improvement in operational efficiencies helped increase staple companies’ gross margins by 1.7ppts YoY to 29.6%. PMPK and RMPL saw a significant increase in their margins as they grew by 13.4ppts YoY to 48% and 7.9ppts YoY to 31%, respectively.

Being a significant segment, the sales for pharmaceutical companies remained in the limelight during the period amid the Covid-19 situation. Given the scenario, the companies witnessed an increase in revenue by 17% YoY mainly due to a surge in prices linked with CPI and an increase in volumetric sales. SEARL and ABOT led this segment and posted increment in sales by 38% YoY and 31% YoY, respectively.

According to Topline Securities, gross margins of pharmaceutical companies were up by 2.0ppts YoY to 36% amidst a stable currency. GLAXO (+3.9ppts YoY to 24%) and ABOT (+3.1ppts YoY to 38.3%) reported a notable increase in gross margins.

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