Consumers’ companies’ Profits up by 80%
Pakistan’s consumer companies-Discretionary, Staples, and Pharmaceuticals have registered an increase in profitability of 80% YoY during 4Q2020 against 86% YoY in 3Q2020. In full-year 2020, the profitability increased by 28% YoY.
Category-wise, Consumer Discretionary firms posted a significant 285% YoY improvement in profitability during 4Q2020, followed by a 60% YoY increase in Consumer Staples and a 29% YoY rise in Pharmaceuticals earnings.
Overall pickup in economic activity on easing of COVID-19 related lockdowns resulted in improvement in overall revenues by 29% YoY during 4Q2020, taking full-year 2020 growth to 4% YoY.
Discretionary firms took the lead, where revenues increased by 55% YoY in 4Q2020 (2020: -11% YoY) primarily due to an increase in volumetric sales given pent-up demand from previous quarters and low-interest rates. Total Car and PAEL’s volumetric sales increased by 26% YoY & 69% YoY, respectively in 4Q2020.
Sales of Staples increased by 19% YoY in 4Q2020 (2020: 15% YoY) where all companies reported an increase except for BATA (-22% YoY) due to lower volumetric sales amid the closure of schools. Revenues of NESTLE (largest in our sample size with a weight of 23%) increased by 4% YoY during the quarter. Staples’ sales growth was mainly led by UNITY (+154% YoY) due to the addition of new product lines along with capacity expansion.
Similarly, sales of the Pharmaceutical segment witnessed an improvement of 11% YoY amid a combination of (1) an increase in prices which are linked with CPI, and (2) an increase in volumetric sales. SEARL (+38% YoY) and ABOT (+31% YoY) led sales increase.
Overall gross margins of consumer firms declined by 0.46ppts YoY to 21.4% in 4Q2020 from 21.9% in 4Q2019 led by BATA decline of 12.5ppts to 31% amid lower efficiencies due to lower volumetric sales.
The gross margins of Consumer Discretionary increased by 2.38ppts YoY to 9.5% mainly due to (1) economies of scale amid higher volumes and (2) increase in prices to pass the impact of currency devaluation and inflation.
All our sample companies in the pharmaceuticals segment reported a decline in gross margins, with the exception of ABOT, which reported an increase of 3.7ppts YoY to 32% from 28% mainly due to a better sales mix i.e. increase in high margin nutrition segment sales.
Overall profitability of consumer companies was up by 26% QoQ in 4Q2020 (vs. 41% QoQ in 3Q2020) led by Consumer Discretionary firms again where profits were up by 52% YoY.
The highest increase in profitability within the discretionary segment was witnessed in PSMC which turned in a profit of Rs1,009mn in 4Q2020 vs. a loss of Rs136mn in 3Q2020, Topline Research said in a report.
Overall sales during 4Q2020 increased by 10% QoQ mainly due to an increase in revenues of Consumer Discretionary (+14% QoQ) amid higher volumetric sales driven by pent-up demand and low-interest rates. Turnover of Consumer Staples firms and Pharmaceuticals were also up by 8% QoQ and 3% QoQ, respectively. The overall gross margins were up by 0.3ppts QoQ to 21.4% amid Pak Rupee appreciation by 4% QoQ.
