Profit of consumer firms soars in Apr-Jun 2021

Surge comes in wake of improving economic activities post-Covid lockdowns

KARACHI:

Amid the inflation flare-up, prices of Pakistan’s consumer goods companies skyrocketed in the second quarter of 2021.

In a recent report, Topline Research analyst Saad Ziker mentioned that Pakistan’s consumer goods companies, including those specialising in discretionary, staple and pharmaceutical segments, had recorded a 92% year-on-year surge in profit during the second quarter of 2021.

During April-June 2021, the discretionary segment posted a profit of Rs7 billion as compared to the loss of Rs968 million in the second quarter of 2020, followed by the pharmaceuticals segment, where earnings rose by 52% and staple businesses, whose profit soared by 29% on a year-on-year basis.

Net sales of all consumer companies increased by 61% year-on-year, mainly due to improved economic activities post-Covid lockdowns, according to the report.

Gross margins during the quarter under review came in at around 23%, down by 259 basis points year-on-year, due to higher raw material and commodity prices.

The discretionary segment witnessed a significant turnaround in profit owing to higher net sales, which were up by 223% year-on-year, as it was severely affected by the Covid-19 pandemic in the previous year. The hike in sales was mainly attributed to higher prices coupled with improvements in car and appliances sales amid economic recovery.

Gross margins of this segment also improved to 12% in the second quarter of 2021 as compared to 3% in the same quarter of previous year, led by an increase in prices and lower per unit fixed cost absorption, as per the report.

“All companies in our sample recorded an increase in profits, with notable improvements seen in Indus Motor and Pak Elektron,” the report added.

In comments to The Express Tribune, Al Habib Capital Markets senior research analyst Sunny Kumar said: “Companies in consumer space are making good profit.”

In April-June 2021, the profit of consumer companies almost doubled, he added.

The discretionary segment, including Indus Motor, Pak Suzuki Motor Company and others, witnessed a major turnaround among others, he said, recalling that Covid-19 restrictions in the previous year had adversely affected the auto sector.

Staple companies

Kumar highlighted that staple companies were also making good profit as their earnings increased by 30% year-on-year, owing to economic recovery, pent-up demand, low interest rate and higher liquidity through the Ehsaas programme. Echoing his views, Ziker in his report mentioned that the profit of staple companies improved mainly owing to improvement in net sales by 25% year-on-year, which was driven by increased demand, introduction of new products and higher prices.

However, gross margins declined to 28% from 30% in the second quarter of 2020.

“All companies, other than National Foods, recorded an increase in profitability with notable improvements witnessed in Rafhan Maize Products, which was up by 60% and Nestle Pakistan, up 33% year-on-year,” the report added.

Pharmaceuticals

In the pharmaceutical segment, Kumar attributed the increase in profitability to the opening of outpatient departments (OPDs), which were closed due to Covid-19 in the previous year.

Furthermore, inflation-linked margins and higher demand amid increasing healthcare awareness supported the earnings, he added.

As per the Topline report, the profit of pharmaceutical segment increased by 52% year-on-year with net sales rising by 25%.

Gross margins declined to around 33% in the quarter under review from 36% in the same quarter of previous year.

The improvement in profit was led by Searle pharmaceutical company, which was up by 98% year-on-year, while GlaxoSmithKline Consumer Healthcare grew by 73% and Abbott Pakistan by 46%.

On a quarter-on-quarter basis, the overall consumer companies’ profits were marginally up by 2% during the quarter under review, with pharmaceuticals segment by 38% and discretionary segment by 10%. However, the profit of staple companies dropped by 9% on a quarter-on-quarter basis, the report added.

Published in The Express Tribune, October 17^th, 2021.

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