KARACHI, Sept 24: The fast moving consumer goods companies (FMCG)--listed on the Karachi Stock Exchange made profits in the first half of the year 2011 (Jan-June), which represented a fascinating growth of 44 per cent over the corresponding period of the previous year.

Nestle, Uniever Pakistan, Unilever Foods, Engro Foods, Rafhan Maize and National Food together showed 28 per cent growth in sales and even a higher 44 per cent increase in earnings.

Yawar Uz Zaman, analyst at brokerage InvestCap, listed three main factors for growth in profitability of consumer item companies. Firstly the increase of 15.7 per cent in food prices over the same time last year; the double digit inflation touching 13.33 per cent in June 2011 and acceleration in volumetric growth amid catastrophes (floods) hitting the country that led to increased demand for consumption of instant food products, such as beverages, bottled water, biscuits, milk and toiletries.The escalating prices of raw materials pulled down gross margins by 70bps to 27.4PC during 1HCY11.

Khurram Schezad, head of research at InvestCap, said that the FMCG companies commanded the power to pass on the higher raw material costs to consumers. Does it mean that the purchasing power of consumers has increased, in spite of the hype on growing poverty? Khurram said that the urbanisation had raised the purchasing power of the rural sector, due to good crops and higher remittances.

He said that inflation and greater demand due to floods had escalated the movement of fast moving consumer goods. Several analysts observed that the consumer awareness was a factor in a turn to FMCG companies for quality products, regardless of their higher prices. Also big name FMCG companies had taken on the competition by offering products in affordable small packs.

However, many conceded that since the sales and profitability figures of FMCG companies in the informal sector and those unlisted on the stock exchanges, was difficult to figure out, it could not, therefore, be determined if the increase in listed (mainly multinational) FMCG companies sales, represented their bigger cut in the consumer market or the informal unlisted FMCG companies dealing in durable goods, such as soap, masala, ghee, milk, toiletries, bottled water, tea and host of other items of daily consumer were doing equally well.

“Such products are sold quickly and at relatively low cost,” said a market observer, who added that though the absolute profit made on FMCG products was relatively small, but they generally sell in large quantities, so that the cumulative profit on such products could be large.

He could not, however, figure out any estimate of FMCG companies in the formal and informal sector. Of the 277 companies registered with the Securities and Exchange Commission of Pakistan in August, 12 fell in the food and beverages sector.

A study of individual listed FMCG companies and their performances in the period Jan-June 2011 showed that National Foods had posted massive 164 per cent growth in profit after tax (PAT) over the same period last year. It was followed by Unilever Foods 66pc YoY, Nestle 34pc YoY and Unilever Pakistan 29pc. Engro Foods was listed during the period. The company had recorded a PAT of Rs216m against a loss after tax of Rs177m in the same period last year.

Analyst Yawar Uz Zaman observed that shares in FMCG companies outperformed the benchmark KSE100 index by providing a solid return of 71pc compared to KSE-100 return of only 2.06pc during 1HCY11. Nestle was the top performer as its value appreciated by a 139 per cent; followed by Unilever Pakistan Foods 34pc, Rafhan Maize 23pc and Unilever Pakistan 20pc. The analysts forecast FMCG companies to reap good returns in third quarter of the year, due to higher demand for food items in the month of Ramazan and greater supplies to the rain and flood affected areas in Sindh.