PSX top firms see 25% profit rise

Stocks record growth faces profit-selling pressure, yet maintains stellar performance

KARACHI:

The top 100 performing companies listed on the Pakistan Stock Exchange (PSX) have reported a 25% increase in their net profit to Rs1.3 trillion in the first nine months of the current fiscal year 2023-24 compared to the same period last year.

This surge in profit coincides with Pakistan’s stock market becoming the world’s best-performing market, according to Bloomberg data.

The increase in profit is attributed to elevated inflation readings, record-high interest rates, and rupee devaluation recorded in the initial months of the fiscal year, which are typically considered obstacles to achieving sustainable economic growth.

The banking sector has led the list of top earners due to higher interest income, while soaring car and tractor prices have also enabled automobile companies to return to profitability.

However, Topline Research reported a 4% slowdown in earnings in the third quarter (January-March) of FY24, breaking the cycle of astonishing profit growth seen in the past six quarters on a year-on-year basis.

The PSX benchmark KSE 100 Index dropped by 2.16%, or 1,640 points, in the last two sessions due to profit-selling, closing at 71,103 points on Tuesday compared to a record high closing of 72,743 points last Friday (April 26).

The index briefly hit a record high of 73,300.75 points on Friday but slipped below the historical mark of 73,000 due to profit-selling on the day.

Profit-selling occurred after the benchmark index, representing the top 100 performing companies, experienced a powerful rally, rising by 7.88% or 5,738 points in April to reach a record high level from the March-end closing of 67,005 points.

The CEO of the research firm, Muhammad Sohail, reported on Friday that Pakistan’s share market is on fire near the 73,000 mark, leading the pack with an incredible gain of almost 80% in US dollar terms over the past year, “maintaining its number one position based on Bloomberg data.”

Arif Habib Limited reported that profitability of the KSE-100 index continues to soar in the first nine months, with the fertiliser manufacturing sector posting a 104% jump in its net earnings, followed by a 49% surge in banking sector profitability.

The power sector posted a 39% growth in net earnings cumulatively in the three quarters, while the cement sector’s profit improved by 19%. The oil and gas exploration sector’s net earnings increased by 12% in the under-review period compared to the same period last year.

The research house elaborated that commercial banks’ profitability posted a 49% growth to Rs441 billion amid higher net interest income, supported by a record key policy rate of 22% in the past 10 months.

Oil and gas exploration profitability increased by 12% to Rs349 billion during the quarter due to currency depreciation, taxation reversal on depletion allowance, and a 1% and 2% uptick in oil and gas production, respectively.

Fertiliser earnings swelled by 104% to settle at Rs102 billion due to 60% higher urea prices alongside an 8% increase in urea sales and a 55% jump in DAP sales.

Cement bottom-line surged by 19% to Rs91 billion amid higher retention prices and lower coal prices, offsetting the impact of an energy tariff hike and currency depreciation.

Chemical sector profitability plummeted by 53% to Rs16 billion, primarily due to a one-off gain booked by Lucky Core Industries Limited during the same period last year owing to the sale of NutriCo Morinaga.

Power sector net profit climbed by 39% to Rs66 billion, with the major contribution coming from HUBC due to the addition of local coal-based plants, a higher share of profit from associates and joint ventures, and rupee depreciation.

The oil and gas marketing companies’ earnings tripled due to higher ex-refinery prices during the period, resulting in inventory gains.

Auto assemblers’ bottom-line witnessed a massive 117% jump, settling at Rs17 billion, driven by better margins amid higher prices of passenger vehicles and tractors.

Refineries’ net profit ascended by 83% to Rs14 billion, while the engineering (steel) sector’s profitability increased by 65% to Rs5 billion, led by International Steels Limited (ISL) and International Industries Limited (INIL) amid better sales and margins.

“We have based our analysis on the KSE-100 index and have included the results of 79 companies. The companies included in our analysis represent almost 85.3% of the market capitalisation of the benchmark bourse,” AHL said.

Topline Research added that corporate profitability slowed down by 4% in the March 2024 quarter, but dividend payments increased by 24% year-on-year.

During the third quarter of FY24, corporate profitability recorded a profit after tax of Rs420 billion, down 4% year-on-year after six quarters, mainly dragged by oil and gas exploration, chemical, and cement companies. Excluding banks, profits were down 13% in the quarter on a year-on-year basis.

Published in The Express Tribune, May 2^nd, 2024.

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