PAKT’s strong quarter

The post-budget quarter was a plentiful one for the tobacco giant. As per its latest financials released to the bourse for three-month period ended September 30, 2021, Pakistan Tobacco Company (PSX: PAKT) scored a strong 36 percent yearly increase in its net turnover and achieved a 28 percent annual increase in its bottomline. This is a much-improved performance than the muted growth seen in previous quarter.

Over at the top, PAKT managed to grow its ‘gross turnover’ by a significant 31 percent year-on-year in 3QCY21. This is led by 32 percent expansion in domestic turnover, which clocked Rs47 billion in the quarter. Whereas export sales reached Rs1.5 billion, an increase of 7 percent over 3QCY20. Domestic sales seem to be buoyed by higher volumes of cigarettes sold compared to same period last year.

Overall sectoral data from the Pakistan Bureau of Statistics show that cigarette production activity picked up in August, with monthly production growing by a third to 5.3 billion sticks. This came after July was a lackluster period with monthly production declining by 14 percent year-on-year to 4.2 billion sticks. September manufacturing volume is also expected to be robust once the data are released next month.

The net turnover growth at PAKT was more-than-proportionate compared to gross turnover, and this helped the financials down the line. The somewhat higher revenue retention (net turnover came in at 38% of gross turnover in 3QCY21, compared to 36.7% in 3QCY20) is on account of comparatively lower growth in federal excise duties (28%) in the quarter compared to gross sales (31%).

The FED collected in terms of gross turnover declined from 48.6 percent in 3QCY20 to 47.4 percent in 3QCY21. In the absence of budgetary changes in FED regime, this could be explained by the firm selling more of its brands in lower FED tier. If indeed the illicit cigarette brands have a significant market share in the mid-thirties and if there are no drastic changes in smoking patterns, the volumetric growth for formal cigarette manufacturers would indicate that the illicit producers are losing their appeal in the market.

While the firm’s cost of sales remained steady around 19 percent of gross turnover, there was considerably higher spending on selling & distribution and administrative expenses. However, a large increase in ‘other income’ – presumably due to higher income from associated companies – compensated for some of those slippages and helped the operating profits to grow by 38 percent year-on-year. Higher ‘finance income’ helped sustain the growth in the pre-tax profits.

In the end, PAKT closed the quarter under review with Rs4.75 billion in net profits, which could have been more had it not been for comparatively higher tax rate charged on pre-tax profits. In the 9MCY21 period so far, PAKT’s net profit came in at Rs14.2 billion, a 26 percent increase year-on-year. The firm is en route to close the calendar with another year of record profits, after scoring Rs16.5 billion during CY20.