October 12, 2021 (MLN): Companies listed at the Pakistan Stock Exchange (PSX) and are part of the benchmark KSE-100 index have posted record high profitability during FY21, mounting by 60% YoY to Rs884bn mainly led by macro recovery post COVID-19 lockdowns in FY20.
As per a report released by Topline Securities, this profitability was significantly higher than last 5-Year and 10-Year CAGRS of 8% and 11%, respectively.
The profitability of KSE-100 index was also better than that recorded in pre COVID-19 era of FY19, when profitability of KSE-100 stood at Rs624bn, which means that profitability in FY21 is up 41% in 2-years. This boost in profitability was augmented by pent up demand and expansionary policy adopted by SBP and the government.
According to the report, SBP had reduced the Policy Rate by 625bps to 7% in 1HFY20 and had maintained the Policy Rate of 7% through FY21. SBP also introduced relief schemes for corporates like Temporary Economic Refinance Facility (TERF), loan restructuring schemes and SBP Rozgar scheme. These schemes helped corporates get concessional financing, get loan repayment extensions and concessional financing for payment of employee salaries. This coupled with government pro-growth budget also aided profitability growth.
The analysis presented in the report included the result of 93 companies while the remaining 7 have not disclosed results yet.
“The analysis based on the 93 companies out of the total 100 companies that have announced their results and represent 98% of K5E-100 market capitalization. Adding remaining companies would not materially impact profitability growth trend,” the report said.
Sector-wise, the jump in profitability was led mainly by improvement in Oil and Gas Marketing (OMCS), Cements and Banks earnings.
During FY21, OMCs witnessed sharp turnaround, posting Rs39bn profitability as compared to loss of Rs13bn in FY20. Company-wise, Pakistan State Oil (PSO), market leader reported profitability of Rs29bn compared to loss of Rs6bn last year. This was followed by Shell Pakistan (SHEL) which reported earnings of Rs5bn against loss of Rs8bn last year. The upsurge in profitability was attributable to higher volumetric sales which was severely impacted last year during COVID-19. The total sales of the OMC sectors increased by 18% to 19.3mm tons in FY21. Inventory gains also supported profitability of the sector as international oil prices averaged US$53/bbl, up 14%, the report mentioned.
Cements emerged as the second-best sector during FY21. Cement sector profitability mounted to Rs36bn as compared to loss of Rs6.2bn in FY20. The star performer among all the cement players was Lucky Cement (LUCK) which contributed 39% overall sector profitability was up 3x. This follows by Maple Leaf Cement (MLCF), of which profitability grew to Rs6.2bn in FY21 against a loss of Rs4.8bn in FY20. This was driven by higher dispatches which was up 20% YoY led by resumption int construction activity and policy incentives for the sector.
Commercial Banks also registered a significant growth of 19% YoY in profits during FY21, mainly on the back of strong deposit growth and lower provisions. Amongst banks, the report noted that National Bank of Pakistan (NBP), Bank Al-Habib (BAHL) and Habib Bank (HBL) recorded profitability growth of 62% YOY, 41% YoY and 34% YOY, respectively.
The report further noted that Fertilizer sector also showed strong profitability growth of 77% YoY to Rs90bn in FY21 owing to gain on account of GIDC, rising DAP prices and margins, and recovery in Agriculture output as Wheat and Sugarcane production moved up by 8% YoY and 22% YoY respectively. Company-wise, the major performers were Engro Fertilizer (EFERT), Fauji Fertilizer (FFC) and Engro Corporation (ENGRO) with profitability of Rs22bn, 21bn and Rs15bn, up by 43%, 21% and 26% YoY, respectively.
Technology sector posted profits of Rs35bn in FY21, up remarkably by 4x YoY. The growth in profitability was led by TRG whose earnings improved to Rs26bn in FY21 compared to Rs76mn last year due to higher share of profit from associates. The other two constituents including Systems Limited (SYS) and Pakistan Telecommunication (PTC) also recorded growth of 56% and 34%, respectively, the report quoted.
With regards to Automobile Assembler, the report stated that this segment also performed well contributing profit of Rs29bn profits in FY21 as compared to Rs5bn in FY20. The prime reason behind this increase was 77% YoY improvement in Net Sales led by higher car sales. During the year, Indus Motor (INDU) remained star performer as its profitability grew by 152% YoY to Rs13bn.
On the other hand, Exploration and Production (E&Ps) and Insurance were the only two sectors that reported earnings decline in FY21.
As per report, E&P sector reported earnings of Rs189bn, drop of 5% YoY in FY21 as Pakistan Oilfields (POL) and Oil and Gas Development Company (OGDC) recorded highest decline of 18% YoY and 9% YOY, respectively. This was due to decrease in Other Income which went down by 52% YoY to Rs24bn and increase in operating/fielding costs by 3% YoY to Rs135bn.
Similarly, the profitability of the Insurance sector weakened by 3% YoY in FY21 despite macroeconomic recovery. The decline is attributed to 23% YoY and 7% YoY lower earnings of posted by EFU General Insurance (EFUG) and Jubilee Life (JUCL), respectively.
Meanwhile, it is worth mentioning that, during FY21, KSE-100 recorded its highest return of 38% since FY14 in PKR terms and highest return of 47% since FY04 in USD term (a 17-year high). Commercial Banks emerged as the best performing sector as it contributed 2,411 points to the benchmark index during FY21, owing to attractive valuation and higher dividend yield. This was followed by Technology & Communication, Cement, Fertilizer, and Textile Composite as they contributed around 2,300, 2,173, 881, and 686 points respectively to the benchmark index.
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