KARACHI, Nov 11: Thanks to lower interest rates, general increase in demand and rupee liquidity in the hands of consumers, overall profitability of the corporate sector took a big leap forward in the quarter July-Sept 2002, compared to the corresponding period of the previous year.
In the banking sector, profit after tax at MCB rose 84 per cent due to some increase in spreads, coupled with 55 per cent decline in loan loss provisioning. Earnings at the other banking giant, NBP — which unveiled third-quarter results last Friday — showed an exuberant growth from Rs17 million to Rs534 million. Over the nine months period, NBP posted profit of Rs1.66 billion, reflecting a huge leap of 433 per cent over profit of Rs312 million in the same period the earlier year. Profit at Askari Commercial Bank rose by 24 per cent and so also at most commercial banks, in varying degrees. Analysts observed that earnings of listed banks had increased as a result of huge deposit growth and lower taxation, in spite of declining interest rates. A contributing factor for increase in NBP’s profit was reduced amortization costs.
The highly leveraged companies such as PTCL, Sui Northern, SSGC, D.G.Khan Cement, and others managed to show marked decline in financial charges owing to the availability of financing at lower cost, which in turn helped to boost their bottom lines.
Cement, fertilizer, utility units and fast moving consumer goods (FMCGs) companies benefited during the quarter by the ability and willingness of consumers to pay more for goods and services.
Cement consumption, for instance, rose by 12 per cent compared to the previous similar quarter, while urea demand grew by 3 per cent in the Jan-Sept nine months. Also gas sales for both Sui Southern and Sui Northern posted combined growth of 6 per cent. Consumption of petroleum products edged higher by 1-2 per cent, which provided a fillip to the profitability of Oil Marketing Companies (OMCs). Even the laggards such as Fauji Jordan Fertilizer Company (FJFC) managed to swing out of the red. FJFC showed net profit of Rs53 million for the quarter, which happened to be the first quarterly profit made by the company in almost three years of operation.
The Pakistan Telecom (PTCL) earned more in revenues with lower tariffs, which represented more call units consumed. The FMCGs giant — Unilever showed both top and bottomline growth, generated by higher demand through sales promotion schemes. The July-Sept (nine months) taxed profits at Unilever amounted to Rs1.46 billion, which already had surpassed the 2001 full year profit by Rs240 million. “With rupee liquidity in the hands of consumers consistently on the rise, interest rates in the economy are likely to stay on the lower side”, says Khalid Iqbal Siddiqui, analyst at stock brokerage firm, InvestCap. He stated that rising liquidity was expected to help in sustaining increase in demand that was observed in the July-September 2002. InvestCap also said that the corporate sector could, therefore, look forward to maintaining the good performance going forward.
But for all that, some analysts at other stock brokerage houses, pointed out that many of those companies were going into a slower phase or trying to boost their earnings via factors other than operations. Arshad Arif, analyst at KASB & Co. cautioned that market had also been over-looking those “imperfection and digesting those results without a pinch of salt”. He suggested that sales volume of companies were slowing down, margins were under pressure and bottomline were showing confusing trends, when compared on quarter-on-quarter (QoQ) basis.
KASB analyst contended that the earning quality of some of the key companies had deteriorated during the last quarter, which needed to be adjusted. In respect of ICI, analyst said that 772 per cent jump in its QoQ profit was on account of Rs1 billion plus tax write- backs and the entire amount was not backed by cash. PTCL was admitted to have posted 18 per cent higher profits but QoQ performance was stated to be disappointing, as slowdown in the topline could not be overlooked. From the topline numbers of PSO, the company was said to be experiencing a slowdown in volumes. Unilever was also said to be moving through a relatively slower phase and the initial hype of a big sales boost to Afghanistan, was fizzling out.
“Engro’s results are also somewhat misleading in the sense that the entire profit isn’t coming from core urea business”, KASB stated, adding that the company’s emphasis over marketing of DAP fertilizer and presence of relatively higher margins in the industry was the causative factor behind the company’s exceptional performance in the third-quarter of financial year 2002. The analyst, but, hastened to add: “We are not saying that these companies are not worth investing, however, the most recent trend is slightly bad and investor need to adjust these bad developments in the stock of these companies”.