KARACHI: The pace of increase in the quarterly earnings recorded by big companies listed on the Pakistan Stock Exchange (PSX) has slowed down by three-quarters of the five-year average.

Profits of the companies that are representative of the corporate sector increased by four per cent year-on-year in July-September to Rs262 billion, according to data compiled by Topline Securities. The bottom-line expansion in the most recent quarter is “significantly lower” than the five- and 10-year annualised growth rates of 16pc and 11pc, respectively.

Speaking to Dawn, brokerage’s As­so­ciate Director for Research Um­air Naseer said the slowdown in profitability growth in July-Septe­mber is beca­use of two major reasons: higher taxation mainly in the form of super tax and the overall economic slowdown.

“The economic slowdown is getting more visible. Interest rates have shot up. High inflation changes buying behaviour, which is squeezing demand,” he said while noting that pre-tax income went up 19pc year-on-year to Rs444bn in July-September.

Major contributors to the overall increase of 4pc in profitability inclu­ded the oil and gas exploration sector. Its profits rose 55pc in the quarter under review to Rs101bn. Profits of banks increased 22pc to Rs80.5bn while those of technology firms rose 257pc to Rs11.8bn.

Other notable contributors to the profitability of the listed segment were cement (27pc), refining (235pc) and chemical (23pc) even though their share in rupee terms wasn’t that big in total earnings.

Sectors that took the sheen off the overall profitability of the listed segment included power generation and distribution. Its constituents reported a loss of Rs9.8bn in July-September versus a combined profit of Rs9.6bn a year ago.

Net income of oil marketing companies went down 94pc on a year-on-year basis owing to inventory and exchange loss. The drop in the earnings of fertiliser companies was 45pc because of a decline in urea and DAP offtakes coupled with lower gross margins, data showed. Profits of the automobile sector crashed by almost 100pc year-on-year — from Rs8.9bn to Rs35m — owing to a decline in car sales and lower gross margins.

Growth in overall earnings in July-September clocked in at 21pc from the preceding quarter of April-June. How­e­ver, pre-tax earnings went down 18pc on a sequential basis because of an economic slowdown, higher interest rates and nationwide floods, it said.

The brokerage came up with its analysis based on the earnings reports of 90 out of the 100 companies that make up the KSE-100 index. These firms represent 98pc of the index’s market capitalisation and, therefore, the remaining companies won’t make any material impact on the profitability growth trend, it said.

Published in Dawn, October 30th, 2022