KARACHI, March 19: Corporate sector profitability for the first half of financial year 2007 (1H07) declined by 10 per cent, while for the fourth quarter 2007 (4Q07), overall earnings eroded by 13 per cent, which followed a flat trend in the third quarter of the year.
Cumulative profit of 71 companies - which form market capitalisation of over 80 per cent on the KSE-100 index — declined 10 per cent for the 1H07 to Rs93 billion, from Rs104 billion in the corresponding period of the previous year.
“The best performing sectors during 1H/FY07 were E&P and banking whose profitability grew by 22pc and 8pc respectively,” say analysts at Atlas Capital Markets. The worst performers included Refinery and OMC sectors whose profitability witnessed a steep decline of 120pc and 69pc with the refinery sector dipping into the red.
The performance of different sectors was as follows: Exploration and Production Sector (E&P) sector fared slightly better due to 11 per cent increase in crude oil prices on year-on-year basis, although 2Q07 had witnessed drop of 14 per cent.
Banking Sector profitability witnessed a growth of just 8pc to Rs28.9bn in 1H/FY07 (excluding BankIslami, Bank of Khyber and Crescent Commercial Bank). Total advances of scheduled banks grew by 13.3pc to Rs2.4trn in December 2006 as against Rs2.1trn in June 2006.
In the same time last year, banks had witnessed increase of 16.2pc in advances. Deposits surged by 7.6pc to Rs3.0trn in 1H/FY07 as against 12.0pc increase in the last comparable period.
The interest rates spreads in 1H/FY07 stood at 7.45pc as against 7.16pc in 1H/FY06. The earnings of the sector were also impacted due to poor performance of the equity market thus resulting in low growth in non-core business income.
Profitability of the automobile assemblers was down by 11pc to Rs3.27bn as against Rs3.67bn last year. Major reason for the decline was the stunted growth in sales volume because of rising car financing rates, plant shutdowns for capacity expansions, surging prices of raw materials i.e. steel, rising financial charges mainly to fund their expansions and decline in other income because of reduced delivery periods.
Textile sector’s profitability fell by 18pc to a total of Rs1,053m as compared to PRs1,293m for the corresponding period last year for the five major companies in the sector.
The common reason for the drop was attributable to sharp increase in cost of sales, which included price of local and imported cotton, increase in minimum wages, fuel and power cost and financial charges.
The telecom sector depicted decline of 20pc in net earnings to Rs8.8bn as compared to Rs10.9bn in 1H/FY06. Continuously reducing international tariffs and decline in domestic prices due to high competition were among major reasons of the downfall.
Fertiliser sector, which is core to the agricultural growth and hence to the economy showed fall of 21pc in earnings to Rs6.2bn, from Rs7.9bn. The major culprits for the decline in the earnings were higher cost because of rising cost of fuel and surging financial charges because of higher interest rates.
Overall profitability of the gas sector fell by 31pc in 1H/FY07 as compared to the corresponding period of last year. Profitability of the power sector which include two biggest Independent Power Plants i.e. Hubco and Kapco declined by 32pc to Rs3.56bn as against Rs5.28bn in the same period last year.
Chemical sector profits declined during 1H/FY07 by 50pc to Rs1.4bn as against Rs2.8bn in 1H/FY06. Total profitability of the cement sector fell considerably by 62pc as a result of tumbling prices along with higher financial charges as a consequence of expansion taken up by several cement manufacturers.
Combined profits of the Oil Marketing Companies (OMCs) for the half year ended December 2006 fell by a massive 69pc to Rs1.58bn compared to Rs5.15bn recorded during the corresponding period of last year.
The first half of the current fiscal year, particularly the second quarter was the worst for the Refinery sector (since FY03), in which the combined bottom-line turned negative for the first time during 2Q/FY07 and stood at Rs629m, taking 1H/FY07 loss to Rs581m, down 120pc from a profit of Rs2,876m posted during the corresponding period of last year.