KARACHI: Companies constituting the benchmark index of the Pakistan Stock Exchange (PSX) reported an average annual increase of 30 per cent in profitability in the first quarter of 2021-22 (1QFY22).

According to an analysis of the financial accounts released by 95 of the 100 companies that form the KSE-100 index, corporate earnings in the July-September quarter amounted to Rs248.87 billion, up 9pc from the preceding quarter.

A report prepared by Topline Securities Research Analyst Muhammad Saad Ziker showed the year-on-year increase in earnings for 1QFY22 has been significantly higher than the cumulative annualised growth rate for the last five years (13pc) and 10 years (14pc).

The increase in profitability was led by oil and gas exploration sector, whose profits grew 36pc on an annual basis. Their quarterly profits amounted to Rs61.3bn versus Rs45bn a year ago. Within this sector, Oil and Gas Development Company accounted for almost two-thirds (63pc) of the sector’s profitability growth followed by Pakistan Petroleum (20pc), Pakistan Oilfields (10pc) and Mari Petroleum (6pc).

Increase in profitability led by oil and gas exploration sector

“The sectoral profitability grew on account of an increase in net sales by 17pc year-on-year amidst rising international oil prices,” said Mr Ziker.

Textile companies followed closely with their quarterly profits surging 115pc over the same period. Their profitability increased to Rs13bn in July-September from Rs6bn a year ago partly because of Nishat Mills Ltd, which reported a bottom line growth of 248pc. This was driven by higher gross margins amidst inventory gains due to a rising trend of cotton prices and a 26pc annual increase in value-added exports during the most recent quarter.

The oil and gas marketing sector increased its cumulative quarterly profits by 74pc year-on-year. The third largest contributing sector in terms of the PSX-wide quarterly earnings increased its net income to Rs14.6bn from Rs8.4bn last year. Pakistan State Oil Company Ltd contributed the most in the sector’s profitability growth on account of inventory gains whereas the profit of Shell Pakistan Ltd dropped due to exchange rate losses.

Cement, engineering and automobile sectors also posted major income jumps in the three-month period, with their year-on-year increase in profitability clocking in at 151pc, 601pc and 159pc, respectively.

The only two sectors that reported a dip in profits were banks and power whose earnings declined 2pc and 9pc, respectively.

Earnings in the banking sector dropped to Rs66bn from Rs67.7bn a year ago mainly because of a 7pc drop in net mark-up income amidst declining interest rates.

Companies within the power sector reported cumulative profits of Rs9.6bn versus Rs10.5bn last year as Kot Addu Power Company witnessed negative earnings growth of 63pc amidst reduced capacity purchase price revenue.

Net sales of the 95 companies under review went up by more than one-third on a year-on-year basis in 1QFY22.

Published in Dawn, November 3rd, 2021