KARACHI: Pakistan consumer companies (staple and discretionary) posted a profitability growth of 15% year-on-year (YoY) in the third quarter of 2016 (3Q2016), according to a Topline Securities report released Wednesday.
The report was based on a sample that Topline Securities conducted of leading companies in consumer and some other sectors that are listed on the Pakistan Stock Exchange (PSX).
The profitability of the consumer sector grew by 23% YoY if Pak Suzuki Motor Company (PSMC) is excluded from the discretionary sector, which exhibited 76% YoY decline in earnings (due to discontinuation of Punjab Taxi scheme) and Thal Limited (THALL) as the company booked a loss of Rs194 million in 3Q2015.
Profitability grew on the back of 4% YoY growth in sales compared with 19% YoY growth seen in September 2015, uptick in gross margins of staples sector, as gross margins expanded by 176 basis points (bps) YoY to 33%.
Moreover, enhanced profitability of the local automobile assemblers, up 23% YoY (excluding PSMC), also gave a helping hand.
On sequential basis, revenues of sample companies declined by 12% quarter -on-quarter (QoQ) while net profits registered a decline of 24% QoQ.
Sales of consumer staples went up 3% YoY in 3Q2016, replicating the growth trend experienced in the corresponding period of last year.
Lower inflation level in 3Q2016 (CPI at 3.8%) is compelling firms to slow down the price increase. This coupled with stiff competition among market participants has further subdued growth potential in the sector, the report added.
Dairy sector registered modest sales growth of 7% YoY in 3Q2016 while profitability of the sector grew by a stellar 55% YoY.
This can be attributed to better gross margins, up 274 basis points YoY to 31% owed to higher volumetric sales and price increase initiatives taken by the dairy producers in order to pass on fiscal year 2017 budgetary impact to consumers.
Moreover, lower energy, transportation costs and falling financial charges have further enhanced profitability during the period.
Discretionary sector posted profitability growth of 7% YoY in 3Q2016 mainly due to the massive increase of 103% in net earnings of Honda Atlas Cars. This can be attributed to 30% YoY growth in sales volume during the period owing to positive reception of newly launched Civic among consumers and expansion in gross margins which clocked in at 16.2%, improving by 2.5 percentage points YoY.
Strong competition amongst manufacturers will keep sales growth under pressure in the short term. But lower inflation, higher demand from the growing middle class and relatively better security situation should drive consumer spending in the long run.
However substantial slowdown in rural economy, uncertain security situation, significant increase in input costs, and inflationary pressure are key risks for Pakistan’s consumer sector, the report said.
Courtesy : Express Tribune