Consumer goods maintain top-notch profitability

Sector witnessed 28% jump in earnings despite rise in input costs.

KARACHI:

Even though Pakistan has been facing some stiff challenges, the consumer sector has continued to march towards north as it jumped by 28% year-on-year (YoY) and earned Rs13.7 billion in profit-before-tax during 9MCY11.

According to a research report of Investcap on Friday, six of their sample companies (Nestle, Unilever Pak, Unilever Foods, Engro Foods, Rafhan Maize and National Foods) continued to excel, posting a combined solid top line growth of 30% YoY during 9MCY11.

This growth was due to the rise in food inflation-average 15% for 9MCY11-which fueled the top line of the sector, as the sector holds strong ability to pass this on the consumer.

However, due to a slight rise in the input costs during 9MCY11, sector’s gross margins went down 68 basis points to stand at 27.8%. Despite the decline in gross margins, core profitability growth remained in the vicinity of the top line growth as the sector’s bottom line blossomed by 28% YoY.

Engro foods rise as emerging giant

On a relative basis, Engro Foods showed an enormous growth of 993% in its bottom line during 9MCY11 mainly due to low base-effect of last year. The firm’s top line grew by a massive growth of 42% YoY in 9MCY11 while the company’s operating profits grew even faster, 193% YoY, amid stable operating costs.

Next, National Foods showed an impressive profit after tax growth of a colossal 186% YoY in 9MCY11, followed by Unilever Pakistan Foods 37% YoY, Unilever Pakistan 22% YoY and Nestle 21% YoY.

This performance of the sector has also been reflected in the stock performance of the companies during 9MCY11 as the sector as a whole yielded an outstanding 47% YoY (sample growth at 45% YoY) in 9MCY11 as compared to the benchmark KSE-100’s return of negative 2.2% during the same period.

Published in The Express Tribune, November 19^th, 2011.