KARACHI: One-third of Pakistan may be underwater, but the blue-chip companies continue to make hay while the sun shines as brightly as ever on the country’s corporate sector.

Net profits of the top listed companies went up 22 per cent for 2021-22 to over Rs1 trillion on an annual basis.

Speaking to Dawn on Saturday, Topline Securities CEO Mohammed Sohail said growth in the earnings of the corporate sector has slowed down from 55pc recorded in 2020-21 only because of the super tax, which was imposed on a retrospective basis in the latest federal budget.

“The truly representative number of corporate performance in 2021-22 is the pre-tax profit of Rs1.7tr, which went up 42pc from the preceding year,” said Mr Sohail whose research house compiled and released the aggregated earnings data for 81 of the top 100 listed firms representing 93pc of the benchmark index capitalisation.

“Some people say such sharp growth in corporate earnings is normal in a high-inflation economy. But data shows net profits in dollar terms also rose 10pc to $5.6 billion,” he said. Pre-tax income of the corporate sector in dollars went up 28pc to $9.9bn in 2021-22.

The government is charging companies from 15 sectors a 10pc super tax if their earnings are in excess of Rs300 million 2021-22 on a retrospective basis. In addition, a slab-wise super tax from 1pc to 4pc was also imposed on companies from sectors other than the specified 15 sectors.

“I agree with the government’s decision to impose the super tax even though it’s slowed down the pace of increase in corporate earnings. Big companies have done well for themselves despite the super tax, inflation and devaluation,” said Mr Sohail.

He also favoured the idea of progressive taxation on the corporate sector, which currently pays income tax at a flat rate with the exception of banks. “Individuals making more money pay more in taxes. The same principle should be applied to the corporate sector,” he said.

The research note by Topline Securities showed the increase in profitability was largely led by oil and gas marketing companies. Their earnings went up 192pc year-on-year, followed by oil and gas exploration (30pc) and refinery (639pc) in absolute terms.

Even though corporate profits are rising, there’re concerns about the quality of these earnings: a significant percentage of them isn’t cash-based owing to the circular debt and the piling up of receivables for companies in the energy value chain.

Annual profits of textile, banking and chemical companies rose 74pc, 3pc and 17pc, respectively, the research report showed.

On the flip side, fertiliser and power sectors reported an annual decline of 9pc each in their profitability for 2021-22.

The representative companies of the corporate sector announced cash dividends amounting to Rs392bn in 2021-22, down 3pc from a year ago. This translates to a 39pc dividend pay-out ratio versus 49pc in the preceding year.

Published in Dawn, September 25th, 2022