Thanks to lower interest rates, general increase in demand and rupee liquidity in the hands of consumers, overall profitability of the corporate sector has taken a big leap forward.

Up until end-September, a total of 220 stock market-listed companies had announced their results for financial year 2002-03, with 183 companies posting profit and only 37 ending up with red on their profit and loss account. Aggregate profit of all companies combined amounted to Rs59 billion, reflecting 30 per cent improvement over their earnings a year ago.

The highly leveraged companies managed to show marked decline in financial charges as they could prevail upon banks to re-profile the costly debts, in the declining interest rates scenario. That in turn helped to boost their bottom lines. Pakistan Telecom— the giant that sets the daily trading tone at the stock market— came up with better-than-expected dividend of Rs3.50 a share and after-tax profit at Rs23.1 billion, up 17 per cent over the earlier financial year. Hub Power Co (Hubco)—the largest Independent Power Producer in the country— continues to stay at the top of core stocks, offering the healthiest dividend yield of 12 per cent, based on its dividend per share expectations of 45 per cent for next year.

Banks came up with healthy results. According to SBP data at about the end of September, total deposits of the banking sector had touched the figure of Rs 1.8 trillion—signifying an all time high level and 36 per cent growth from deposit base of Rs 482 billion in September 2001. Among the banking giants, NBP posted 71 per cent increase in after-tax profit amounting to Rs1.9 billion for half year ended June 30 and MCB recorded 45 per cent growth in after-tax profit to Rs 1.2 billion over the first half of 2002.

Textile mills, that had launched into massive balancing, modernisation and replacement (BMR) have started to reap dividends. Investment banks, listed stock brokerage funds, mutual funds and insurance companies that retained hefty equities portfolio, not only managed to shore up their core income with huge sums in dividends, but also saw their balance sheets strengthen with the premium multiplying on the equities as stock market continues to boom.

NIT—the largest open-end mutual fund in the country— managed to make nearly Rs 3 billion in profit, which reflected 55 per cent growth year-on-year. Financial year 2003 was good for the leasing sector as well which, in spite of falling lease rates, benefited from lower cost of funds and higher income from investments (capital gains).

Leasing companies could thus ride out the challenge from banks, which by virtue of their depositor base and marketing reach (branch network) enjoyed substantial competitive advantage. Fast moving consumer goods (FMCGs) companies benefited by the ability and willingness of consumers to pay more.

Over the last three years, sales of those companies have risen by around 8 per cent and earnings have appreciated by 18 per cent. Sales at Unilever—the biggest on the sector—crossed past the Rs20 billion mark in financial year 2003. Oil marketing companies did well with the PSO posting highest ever profit before tax of Rs6.2 billion and Shell reporting 18 per cent growth in after-tax profit to Rs 1.3 billion.

The National Refinery’s 2003 earnings jumped by a massive 73 per cent to Rs1.4 billion. On the fertiliser front, Fauji and Engro earned and paid well, their dividend yield working out at around 10 per cent. Stability of the Rupee, rising demand and the government’s policy of putting up barricades against import of used cars paid off well for the automobile industry, which made bagful of money. Indus Motor’s net income grew by 249 per cent to Rs 1.3 billion, from Rs 360 million the previous year.

According to Pakistan Automotive Manufacturers Association (PAMA) sales of cars, truck and buses during July-June 2002-03 were respectively higher by 46, 54 and 24 per cent. Among life insurance companies, American Life and EFU posted improved profit while the Commercial Union returned to profit of Rs 10 million from loss in the previous half year.

Sugar mills posted sweet results for the half year ended March 31, 2003.

Primary margins for the PSF industry, remained dim, due to domestic supply overhang and it was difficult to put faith in either Dewan Salman Fibre—the largest PSF manufacturer—or the others: ICI and Ibrahim Fibres.

Cement companies came up with overall dismal results, due to excess capacity and plunge in prices in the beginning of the year. Four major cement companies, i.e. Lucky, D.G.Khan, Cherat and Maple Leaf made combined pre-tax profit of Rs 631 million for 2003, which was 33 per cent lower than Rs 947 million earned last year.

But with better capacity utilisation, increase in exports to Afghanistan, faster switch over to coal from furnace oil and cut in financial charges and taxes, cement units were expected to return to higher growth in profitability.

According to the Economic Survey 2002-03, a total of 422 listed companies had made profit during the year 2002, which was about the same number as in 2001. The Survey had put the number of dividend paying companies at 306 in 2002, compared with 314 the year ago.

Textile and Sugar Mills would possibly be the last— and with the largest number of companies under their fold—to release the full year 2004 results. But that would not be until January of next year. It would then be possible to assess the overall profitability trend of the country’s corporate sector during the full financial year 2003-04.