The net profit earned by the top 100 performing companies listed on the Pakistan Stock Exchange (PSX) surged 51%, reaching a new record high of over Rs1.5 trillion in the year ended December 2023.
The major causes of depreciation in the domestic economy, namely high inflation rates, high interest rates, and rupee depreciation, provided a strong basis for different sectors to maintain a record high earning spree for another successive year. Among those making significant contributions to the overall profitability were banks, oil and gas exploration companies, and the power and fertiliser manufacturing sectors.
In a report titled ‘KSE-100 Index Profitability - CY23: Another year of record profitability, surpassing Rs1.5 trillion’, Arif Habib Limited (AHL) said “Dividends of KSE-100 companies (paid to shareholders) increased by 42% year-on-year to Rs547 billion in calendar year 2023.”
The PSX benchmark KSE-100 Index – comprising the top 100 performing companies – registered a 14-year high growth of 55% in 2023, mostly in the second half (Jul-Dec). The index closed the year at 62,451 points on December 29, emerging as the best-performing bourse in the year globally.
The index closed at 63,703 points on Wednesday after witnessing highs of CY24 at 64,822 points in late January and lows at 59,873 points in mid-February.
The research house reported that the outstanding growth in overall profitability during the year was attributable to an enormous surge of 82% in banks, 60% in oil and gas exploration companies, 55% in the power sector, and 47% in the fertiliser manufacturing sector.
It said the profitability of commercial banks posted an 82% year-on-year growth to Rs550 billion amid higher net interest income due to “elevated interest rates.”
To recall, the State Bank of Pakistan (SBP) jacked up its benchmark policy rate (interest rate) cumulatively by 15 percentage points to a record high of 22% in June 2023 from 7% in September 2021.
The central bank has maintained the policy rate at an all-time high of 22% since June 2023 to date to control stubborn inflation readings. The high interest rate helped the banks and the government achieve desired results in cooling down the then overheated economy. On the other hand, the high interest rate provided a basis for commercial banks to thrive in profitability and emerge as the best-earning sector among others.
Oil and gas exploration sector profitability soared 60% to Rs480 billion in 2023 “given currency depreciation, taxation reversal on depletion allowance, and exchange gains during the period,” according to the research house.
To recall, the domestic currency had depreciated almost 20% in 2023, closing the year near Rs282/$. It closed at over a four-month high at Rs279.12/$ on Wednesday.
AHL further said the power sector’s net profit climbed up by 55% to Rs77 billion. The major contribution to this growth comes from Hubco amid “the addition of local coal-based plants, a higher share of profit from associates and joint ventures, and rupee depreciation.”
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The fertiliser sector’s profitability recorded 47% growth to Rs94 billion owing to 50% higher urea prices alongside a jump in DAP sales by 31%.
The cement sector’s bottom-line surged by 38% to Rs100 billion amid higher retention prices and lower coal prices, which offset the impact of volumetric decline (-1% YoY), a hike in energy tariffs, and currency depreciation.
The chemical sector’s earnings increased by 34% to Rs48 billion, primarily on account of a one-off gain booked by Lucky Core Industries Limited owing to the sale of NutriCo Morinaga.
Auto assemblers, facing a great depression in their sales, reported a growth of 72% in their net earnings to Rs20 billion in 2023 “due to a low base and better margins amid higher prices of passenger vehicles and tractors,” the research house said.
Refineries’ net profit climbed up by 8% to Rs26 billion owing to inventory gains. Engineering (Steel) profitability was up by 186% to Rs14 billion led by International Steels Limited (ISL) and International Industries Limited (INIL) amid better sales and margins.
The food and personal care sector’s earnings increased by 6% to Rs22 billion owing to higher sales alongside better margins.
The analysis was based on the financial results reported by 72 companies out of the total 100 in the index. The companies included in its analysis represent almost 83.4% of the market capitalisation of the benchmark bourse.
Local research houses projected in December 2023 and January 2024 that the benchmark KSE 100 Index would soar to 75,000-81,000 points by the end of December 2024 for three major reasons, including general elections (already held on February 8), likely significant cuts in the SBP policy rate, and the acquisition of the new International Monetary Fund loan programme after the current one ends in March-April 2024.
The elections, however, have failed to end political uncertainty as of yet, making the acquisition of the new IMF loan programme a tough job for the new coalition government in the making.
Published in The Express Tribune, February 29th, 2024.
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