As the results’ season draws to a close, analysts work feverishly on their calculators to determine the corporate profitability for the quarter ended on Dec 31, 2020.

The results are pleasantly surprising. The aggregate profit earned by listed companies in the quarter amounted to Rs213.9 billion, registering impressive growth of 38 per cent year-on-year. Sector-wise reviews show the segment with the heaviest weight in the KSE-100 index, commercial banks, contributed the highest sum of Rs48bn earned in the quarter. The figure, however, fell by 8pc over the profits recorded in the same quarter in 2019.

The oil and gas exploration and production sector produced the second highest profit after tax of Rs41bn for the quarter, which was 15pc lower than the earnings of Rs48.1bn in the same quarter in 2019.

The sector that reported scintillating growth in profit was technology and communication. The sector put together earnings of Rs5.9bn, skyrocketing by 27.6 times from Rs207m year-on-year. Software companies, Avanceon Ltd, Systems Ltd, TRG Pakistan and Netsol Technologies saw their share prices take off during the year, providing their stockholders jaw-dropping capital gains.

Listed companies grew their earnings 38pc on an annual basis for the Oct-Dec quarter

Just to recount, TRG Pakistan was languishing at Rs12.87 a share on March 25, 2020. It is now trading at Rs143, up 11 times in one year. Netsol Technologies surged from Rs27.16 a share to Rs285, up 10 times in one year. Sector-watchers said that technology companies even in the United States defied the worst economic downturn and reported robust financial growth during the pandemic.

The engineering sector, which mainly consists of steel companies, also outperformed most sectors with earnings of Rs5.1bn, recording growth of 18.7 times from Rs257m a year ago. The cement sector also

posted stellar growth of 570pc in net profit to Rs11.7bn from Rs1.7bn in 2019. Both sectors had benefitted from the government’s fabulous incentives to the construction industry as it provided employment to the largest number of people rendered jobless at the height of Covid-19.

As to the sector’s outlook, Foundation Securities stated: “The better utilisation level given higher cement demand would allow a gradual increase in cement prices in FY21/22 in our view. Moreover, a lower finance cost due to a sharp 625 basis points cut in the policy rate would also support the sector’s profitability.” Relating to steel, analysts observed that the sector had shown the highest-ever quarterly profit in the second quarter of 2020-21, thanks to a strong recovery in volumes, pricing power in flat steel market, decline in the finance cost etc.”

The profitability of oil marketing companies also jumped 283pc in a year to Rs6.1bn from Rs1.6bn. Auto assemblers also enjoyed a bumper profit of Rs6.6bn, up 217pc from Rs2.1bn, mainly on price increases.

According to Ismail Iqbal Securities, which compiled figures of sectoral profitability based on 83pc results announced till the preparation of the report, fertilisers recorded net profit of Rs31.2bn, 168pc higher than the sector’s earnings of Rs11.7bn in 2019.

The pharmaceutical sector also increased earnings by 83pc year-on-year to Rs2.7bn from Rs1.5bn. Exponential growth in sales was seen on account of the widespread usage as well as storage of drugs to grapple with the pandemic.

Textile profits also rose 56pc to Rs7.8bn from Rs4.5bn as the country was spared the massive damages caused by Covid-19 in most other nations. It enabled Pakistan to fill foreign orders and even capture a bigger share in the international markets.

Topline Securities, in a review of listed textile composite sector based on a sample of 21 companies representing 82pc of market capitalisation, said that the sector’s profitability recorded a significant increase of 32pc year-on-year in the first half of 2020-21 “primarily due to an increase in textile exports, improvement in other income and a decline in finance costs”.

The profits of independent power producers (IPPs) edged up by 56pc to Rs19.3bn from Rs12.3bn due to a stronger dollar that supported the IPPs’ dollar-based tariff.

Ali Nadeem, head of sales at First National Equities, observed that the KSE-100 index fourth-quarter earnings remained flat quarter-on-quarter. On a year-on-year basis, earnings maintained healthy growth of 38pc. He pointed out that one sector whose earnings outperformed those of others was fertiliser. It recorded growth of 168pc year-on-year on GIDC measurement gains and turnaround in Fauji Fertiliser Bin Qasim.

The technology and communication sector saw the fastest growth in earnings i.e. staggering 28 times higher year-on-year, led by PTC and TRG Pakistan. Contrary to the general impression about poor performance from cyclicals, all three major sectors — steel, cement and automobile — outperformed the index.

On the flip side, index heavyweight banks underperformed in terms of quarterly earnings, something analysts attributed to a drop in interest income by 8pc and higher provisioning.

The oil and gas exploration and production sector also witnessed a dent on profitability by 15pc, owing to depressed international oil prices. The food sector’s earnings were satisfactory but were dragged down by poor profitability of FrieslandCampina Engro.

“The strong corporate profitability provides strong support to the market and should be a key driver for the KSE-100 index once political noise dies down,” said Raza Jafri, head of equities at Intermarket Securities.

Published in Dawn, The Business and Finance Weekly, , March 8th, 2021

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