Consumer sector’s profit grows 58%: report

Discretionary firms outperformed staples segment in Jul-Sep quarter

KARACHI: Profits of listed Pakistani consumer companies showed a robust growth of 58% to Rs11 billion in the July-September quarter of 2015 compared to the same quarter last year, Topline Securities said in a report on Wednesday.

“Higher volumes drove the profitability,” said the report. “Volumes reached Rs121 billion due to increase in consumers’ buying power, up 19% compared to 12% growth recorded in the same quarter last year.



“Considerable improvement in gross margin, which increased by 356 basis points to 25.6% on the back of declining input costs, also contributed to this growth,” it further added.

The aforesaid report, which is based on a sample of listed companies with market capitalisation of $200 million or higher, states the discretionary firms outperformed the staples segment within the consumer sector during the review period.

Consumer staples refers to essential products, such as food, beverages and household items that consumers don’t cut on regardless of their financial situation while discretionary segment refers to nonessential products like automobiles and apparel. Consumer discretionary outshined the sector with sales growth of 53% year-over-year (YoY) to Rs49.4 billion while net earnings clocked in at Rs4.8 billion, up 179% YoY, the report said.



“This stellar performance was on the back of healthy growth in the auto sector as a result of increase in per capita income, new models and the taxi scheme, overall recovery of the economy and increase in car financing,” the report added. On the other hand, sales of consumer staples witnessed a slowdown in growth, the report stated.

The staples segment had growth of 3% YoY to Rs71.5 billion in the third quarter of 2015 compared to 13% of the same quarter of 2014.

Topline attributed the slowdown in the staples segment to record low inflation, which was recorded at 1.6% in July-Sept. quarter compared to 7.5% of the same quarter of 2014. The low inflation rate compelled firms to slow down the price increase and in some cases even reduce it. For example, Nestle reduced price of its flagship product MilkPak by about 8% to Rs110 per liter while Engro Foods revised the price of Olpers by approximately 4.5% to Rs105 per liter.



Decline in farmers’ income due to falling commodity prices, it said, was another reason for the slowdown in the staples segment.

Profits of consumer staples, however, delivered an excellent growth of 20% to Rs6.4 billion, the report said, attributing them to lower input cost, declining energy and transportation charges on the back of lower oil prices and falling financial charges as a result of lower policy rate.

“We remain optimistic on Pakistan’s consumer sector,” the report concluded saying as per their channel checks, Fast Moving Consumer Goods companies were aggressively pursuing their promotional campaigns in response to the rising tide of consumerism.

Published in The Express Tribune, November 12^th, 2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.