KEEPING last week’s equity meltdown aside, for stock investors, things have never been as good as in the past two years. They have enriched themselves both by phenomenal capital gains from soaring stock prices and from robust company payouts — all due to a giant leap in the profitability of corporate Pakistan.

And while the first quarter (January-March) 2014 corporate results did steal the investors’ springtime joy, a dent in overall profitability in the quarter, most market gurus argue, should be considered a ‘one-off’ disappointment. Below-than-expected earnings of three high profile companies — OGDC, PPL and PSO — dragged the overall corporate sector earnings by 12pc over the corresponding quarter of 2013.

“Adjusted for OGDC, PPL and PSO results, corporate earnings grew by 5pc quarter-on-quarter,” say analysts at Shajar Capital. Banks were star performers, recording a combined growth of 17pc in earnings over the same time last year (YoY).

During the first 10 months of the current fiscal, as few as 15 blue chip companies earned a big profit-after-tax of Rs286bn, according to the Economic Survey 2013-14. Among these, OGDC earned Rs90bn and Pakistan Petroleum Limited Rs42bn

Zeeshan Afzal, an analyst at Topline Securities, comments, “In 2014, profit-after-tax of four leading banks (MCB, NBP, UBL and BAFL) is visualised to increase by 32pc, against an 11pc decline in 2013”.

The 1Q2014 results did spring some surprises as well. Pakistan International Airlines (PIA) attained an operating profit of Rs1.67bn, against a loss of Rs5.65bn in the same period in the previous year; the national flag carrier managed an operating profit after a lapse of four years.

Directors pondering over the results in boardrooms are generally loathe to distribute dividends to shareholders early on in the year. The finance minister ignored the KSE’s proposal for compulsory distribution of dividend by profitable companies. Yet, there is an increasing trend of remunerating shareholders at year-end. The latest annual report of the KSE shows omission of dividend by 94 profit making companies in 2012, against 105 in 2011. During the year, 59pc of all listed companies managed to earn a profit, up from 55pc a year ago.

The oil and gas sector, with 13 listed companies, is a trend-setter for the market. And the Oil and Gas Development Company Limited (OGDC), with around Rs12 billion market capitalisation, is regarded as an anchor that often prevents the market from sinking.

The Economic Survey 2013-14 makes some interesting assessments of corporate profitability.
During the first 10 months of the current fiscal, as few as 15 blue chip companies earned a colossal profit-after-tax of Rs286 billion.

Among these, OGDC earned an unmatched profit of Rs90bn, and Pakistan Petroleum Limited stood second with Rs42bn. The two together accounted for 46pc of the combined earnings of the 15 blue chip companies.

The 15 companies held a paid-up capital of Rs176bn, which constituted 15pc of the total listed capital of the KSE. Three big banks that were major profit earners included MCB Bank with earnings of Rs22bn; HBL with Rs23bn and UBL with Rs19bn. The state-controlled oil marketing company, PSO, also posted a stellar profit of Rs13bn. The earnings of Fauji Fertiliser at Rs20bn and Pakistan Oilfields’ at Rs11bn were also the envy of rest of the companies listed on the KSE.

The other blue chip companies included NBP (with an after-tax profit of Rs6bn), Lucky Cement (Rs10bn), Engro Corporation (Rs3bn), Hub Power Company (Rs9bn), Kot Addu Power Company (Rs7bn), Bank AlHabib (Rs5bn) and Nishat Mills (Rs6bn).

Yet, an interesting phenomenon was seen in the country’s largest industry — textiles — where scores of listed companies, after years of hibernation, stirred to life. The sector, with 175 listed companies, recorded a profit of Rs39bn in 2013, a turnaround from a loss of Rs6bn in 2012. “The sparkling earnings indicate that the business environment in the fiscal year 2013-14 has improved considerably for blue chip companies,” the Economy Survey concluded.

Foreign companies got a fair share of the earnings growth as well, as most multinational companies continue to do roaring business in Pakistan. The higher repatriation of profit and dividends reflects the growth in their corporate earnings.

“Going forward, regardless of the shortage of power, deterioration in law and order conditions, low fresh local and foreign investment in industrial ventures and political uncertainty, large corporates hold promise of double digit growth in earnings,” says Wajid Hasan, a senior analyst at a prominent brokerage house.

But for all that, many people who have little or nothing to do with stocks and listed companies’ earnings complain that corporate prosperity has done little to boost the economy or to create more jobs. “The companies continue to cut expenses to the bone and work existing employees even harder, but adding more names on the payrolls has remained elusive,” an economist contends.

Published in Dawn, Economic & Business, June 23rd, 2014