Food sector displays robust growth
PHOTO: AGENCIES
Despite economic meltdown, the agriculture sector of Pakistan recorded a robust growth in the first quarter of 2023, driven by price increases and rebounding gross margins.
According to a JS Research report, the food sector continued to show robust performance during 1QCY23 as the topline expanded by 47% year-on-year (YoY).
Speaking to The Express Tribune, JS Global analyst Amreen Soorani highlighted that for the analysis of food sector’s performance during 1QCY23, a proxy of 11 listed food companies was taken for observation.
The majority of the contribution came from four companies that were broadly milk producers – Nestle Pakistan, FrieslandCampina Engro Pakistan, PREMA of At Tahour, and Fauji Foods – while other companies included a mix of confectionery, ready-made food items and other food segments.
According to the analysis, the topline growth was driven more by unit price increases and less by volumetric growth, said Soorani, attributing the boost to the ongoing higher food inflation, with limited/ negative economic growth.
The Consumer Price Index (CPI) for April 2023 clocked in at 36.4% YoY, and up 2.4% month-on-month, which was the highest YoY inflation since the available data, ie July 1965, according to AHL Research.
“This takes average inflation for 10 months of fiscal year 2022-23 to 28.23% compared to 11.04% in the corresponding period of previous fiscal year (FY22).”
Despite inflationary pressures and higher commodity prices, the sector was able to more than pass on the impact of cost to end-consumers as gross margins rebounded to 26%, up five percentage points quarter-on-quarter (QoQ) and two percentage points YoY.
The sector was also able to broadly expand its operating margins to 17%, the highest in recent history. Bigger companies witnessed higher efficiencies in selling and distribution expenses, which contributed to the expanding margins.
Muhammad Ali, an analyst at AKD Research, while talking to The Express Tribune pointed out that in the last six to eight months, prices increased phenomenally, which provided a margin to Pakistani food companies.
“Moreover, in the international market, prices of many commodities such as vegetable oil and seeds have gone down, which has also contributed to the increased margins,” he said.
Despite a negative impact on the margins of food companies due to the rising dollar, the food sector along with the banking and IT sectors experienced growth in the current economic situation, although the food sector was making losses last year. On the other hand, other sectors were facing a decline.
A high interest coverage ratio of seven times also favoured the sector’s limited increase in expenses in the ongoing high interest rate scenario when compared to other manufacturing sectors.
Published in The Express Tribune, May 6th, 2023.
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