KARACHI: The KSE-100 Index companies recorded record profitability in FY21, growing by 60 percent on year-on-year basis to Rs 884 billion mainly led by macro recovery post COVID-19 lockdowns in FY20. This profitability was significantly higher than last 5-Year and 10-Year CAGRs of 8 percent and 11 percent, 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 Rs 624 billion, which means that profitability in FY21 is up 41 percent in 2-years, experts said. This boost in profitability was augmented by pent up demand and expansionary policy adopted by SBP and the government, Muhammad Saad Ziker at Topline Securities said.

To recall, SBP had reduced the Policy Rate by 625bps to 7.0 percent in the first half of FY20 and had maintained the Policy Rate of 7.0 percent through FY21. The 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.

This is also evident from the fact that Finance Cost of KSE-100 index companies was down 37 percent on YoY to Rs 87 billion in FY21. Net Sales of KSE-100 companies were up by 7.0 percent on YoY to Rs 7.0 trillion whereas Gross Profits improved by 23 percent on YoY to Rs 1.9 trillion. Consequently, Gross Margins improved to 27 percent versus 23 percent in FY20.

In the fourth quarter of FY21, profitability of KSE-100 index was up 85 percent on YoY and 6.0 percent on quarter-on-quarter basis to Rs 246 billion. Net sales of KSE-100 companies improved by 38 percent on YoY and 11 percent on QoQ basis.

For this analysis, 93 companies have been taken companies out of the total 100 companies (that have announced their results) which represent 98 percent of KSE-100 market capitalization. "We believe that adding remaining companies would not materially impact profitability growth trend", he said.

KSE-100 index profitability growth was mainly led by improvement in Oil and Gas Marketing Companies (OMCs), Cements and Banks earnings.

OMCs: OMCs witnessed sharp turnaround during FY21, posting Rs 39 billion profitability as compared to loss of Rs 13 billion in FY20. During the year, Pakistan State Oil (PSO), market leader reported profitability of Rs 29 billion as compared to loss of Rs 6 billion last year. This was followed by Shell Pakistan (SHEL) which reported earnings of Rs 5 billion versus loss of Rs 8 billion last year.

During FY21, the profitability increased on account of higher volumetric sales which were severely impacted last year during COVID-19. OMCs sales increased by 18 percent to 19.3 million tons in FY21, he said adding that inventory gains also supported profitability of the sector as international oil prices averaged $53/bbl, up 14 percent.

Cements: Cements emerged as the second best sector during FY21. Cement sector profitability increased to Rs 36 billion as compared to loss of Rs 6.2 billion in FY20. The star performer among all the cement players was Lucky Cement (LUCK) which contributed 39 percent to over all cement sector profitability and was up 3xYoY. This was followed by Maple Leaf Cement (MLCF), of which profitability grew to Rs 6.2 billion in FY21 versus loss of Rs 4.8 billion in FY20.

This was driven by higher dispatches which were up 20 percent on YoY led by resumption in construction activity and policy incentives for the sector, he said.

Commercial Banks: Commercial Banks also recorded profitability growth of 19 percent on YoY in FY21 mainly on account of strong deposit growth and lower provisions. Amongst banks, National Bank of Pakistan (NBP), Bank Al-Habib (BAHL) and Habib Bank (HBL) recorded profitability growth of 62 percent on YoY, 41 percent on YoY and 34 percent on YoY, respectively.

Fertilizer: Fertilizer sector also showed strong profitability growth of 77 percent on YoY to Rs 90 billion in FY21. The major performers were Engro Fertilizer (EFERT), Fauji Fertilizer (FFC) and Engro Corporation (ENGRO) with profitability of Rs 22 billion, Rs 21 billion and Rs 15 billion (up 43 percent, 21 percent and and 26 percent on YoY), respectively. This was attributed to major recovery in the agricultural output such as wheat and sugarcane production (increase of 8.0 percent on YoY and 22 percent on YoY); gain on account of GIDC and rising DAP prices and margins.

Technology Sector: Technology sector's profitability increased by 4x YoY to Rs 35 billion in FY21 mainly led by TRG whose profitability improved to Rs 26 billion in FY21 compared to Rs 76 million 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 percent and 34 percent, respectively.

Automobile Assembler: This segment also performed well contributing profit of Rs 29 billion profits in FY21 as compared to Rs 5 billion in FY20. The prime reason behind this increase was 77 percent on 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 percent on YoY to Rs 13 billion.

E&Ps: E&P companies reported earnings of Rs 189 billion, drop of 5.0 percent on YoY in FY21. This was due to decrease in Other Income (down by 52 percent on YoY to Rs 24 billion) and increase in operating/fielding costs by 3.0 percent on YoY to Rs 135 billion.

Pakistan Oilfields (POL) and Oil and Gas Development Company (OGDC) recorded highest decline of 18 percent on YoY and 9.0 percent on YoY, respectively. Other players including Pakistan Petroleum (PPL) and Mari Petroleum (MARI) were up 4.0 percent on YoY.

Insurance: Insurance Sector also recorded 3.0 percent on YoY decline in FY21 despite macro economic recovery. During the year, EFU General Insurance (EFUG) and Jubilee Life (JLICL) profitability was down 23 percent on YoY and 7.0 percent on YoY, respectively. On the other hand, players including IGI Holdings Limited (IGI) and Adamjee Insurance Company Limited (AICL) showed profitability growth of 48 percent on YoY and 16 percent on YoY, respectively.

Copyright Business Recorder, 2021