Pakistan Tobacco Company

Amid some important steps by the government in 2013 to tackle the illicit tobacco market, the cheaper and duty-evaded brands remained a large source of demand for tobacco consumers. This also remains the biggest source of threat for the documented tobacco industry of which Pakistan Tobacco Company holds a significant share.
However, 2013 was still an important year for Pakistan Tobacco Company as the tobacco giants earnings increased by a massive 81 percent, year on year, with margins jumping from 10 to 12 percent.
The beginning of 2014 also seems steady from a look at the firms performance for 1Q CY13, announced yesterday. During the three-month period, Pakistan Tobacco Companys net revenues registered a healthy growth. While the main reason for the sales growth is not completely known, the companys CY13 annual reports highlight above inflation price increase and sales volume growth. The price increase came following the governments FY14 budgetary increase in sales tax and excise duty.
With reasonable increase in costs and expenses, the top line growth was the main contributor to the bottom line growth during. However, the firms margins slipped slightly during the same period, i.e. 1Q CY14.
Pakistan Tobacco Company is a significant contributor to the national kitty, and the government is expected to raise these taxes further to fill the revenue gap.
Though the company has many advantages like being the largest player, and the market leader, it is fraught with macro-level challenges-the illegal cigarette market and cigarette smuggling from porous borders-that need to be addressed.

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Pakistan Tobacco Company

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Rs (mn)                      1QCY14    1QCY13    YoY

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Net turnover                  9,190     7,746    19%

Gross profit                  3,145     2,719    16%

Selling & distribution exp      686       597    15%

Admin exp                       449       332    35%

Operating profit              1,897     1,675    13%

PAT                           1,243     1,088    14%

EPS (Rs)                       4.87      4.26    14%

Gross margin                 34.23%    35.10%

Operating margin             20.64%    21.62%

Net margin                   13.53%    14.04%

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