First Quarter corporate profits soar by 43 percent

Led by growth in the heavyweight E&P and banks along with fertiliser and cement sectors, the corporate profits during the first quarter of FY12 soared by 43 percent over the same period last year. However, KSE-100 failed to act in a likewise manner, gaining mere 0.9 percent in October 2011, underperforming regional markets by an average 5 percent, while registering a fall of 5.2 percent in FY12 till date.
"We believe domestic political uncertainty and tensions with the US together with the global economic woes overshadowed the impressive corporate results," Atif Zafar, an analyst at JS Global Capital said. Absence of any significant payouts tamed the excitement as well, he added. "Looking ahead, we expect earnings growth to settle in the vicinity of 17 percent on year-on-year basis in FY12, translating into an impressive earnings yield of 16 percent (a spread of 420bps over 1 year T-bill)," he said.
"We base our analysis on a sample of 40 companies, representing 75 percent of the KSE-100 market capitalisation, cumulative corporate profits were recorded at Rs 86.5 billion ($997 million) in the first quarter of FY12 against Rs 60.4 billion ($705 million) in the same quarter in FY11, up 43 percent on year-on-year basis," he said.
Profits of E&Ps and OMCs increased by 32 percent and 69 percent, respectively during the first quarter of FY12, while refiners and power utilities' respective earnings declined by 11 percent and 26 percent. Hence, energy companies cumulatively posted earnings growth of 27 percent led by enhanced production profile of E&Ps, higher international oil prices and lower turnover tax rate. The manufacturing concerns profits (up 128 percent) were boosted by higher domestic demand and price hikes, Atif said. To recall demand received a battering last year following heavy floods. All fertiliser offtake, local cement demand and auto sales increased by 30 percent, 12.2 percent and 30 percent, respectively while a respective average price increase of 42 percent, 40 percent and 9 percent were witnessed. The banks led the growth in the services sector (up 38 percent) on the back of increased spreads owing to higher Kibor (average 6M up 81bps). PTCL profits declined by 32 percent owing to higher operating costs and lower other income, he added.