Corporate Profits Dip 4% YoY in Q1 FY24

Staff Report

Corporate profitability in the March 2024 quarter saw a 4% year-on-year decrease, as evidenced by the profit after tax of Rs 420 billion recorded by KSE 100 companies.

This has marked a 4% drop from the previous year after six consecutive quarters of growth.

This decline was mainly driven by the Energy & Petroleum (E&P), Chemical, and Cement sectors. Excluding banks, profits were down by 13% year-on-year.

On a quarter-on-quarter basis, the KSE 100 index experienced a 1% decline for the second consecutive quarter, primarily due to decreases in the E&P and banking sectors.

During the first nine months of the fiscal year 2024, benchmark index companies posted earnings of Rs1.3 trillion, marking a 25% year-on-year increase. Excluding banks, profits were up by 18% year-on-year.

In the first half of fiscal year 2024, companies saw a robust growth of 45%.

For analysis purposes, we considered the consolidated accounts of 95 out of 100 companies that have announced their results, representing 97% of the KSE-100 market capitalization and 82% of the total market capitalization.

We anticipate that including the remaining companies would not significantly alter the profitability growth trend,” Topline said in a report.

Banks witnessed an increase in sector profits to Rs149 billion in the third quarter of fiscal year 2024, driven by higher Net Interest Income (NII).

However, on a quarter-on-quarter basis, profits declined due to falling Net Interest Margins (NIMs) as the Karachi Interbank Offered Rate (KIBOR) averaged 21.3% in the third quarter compared to 21.9% in the second quarter.

The E&P sector recorded a 22% year-on-year decline in earnings, attributed to the absence of substantial exchange gains recorded in the same period last year due to a 7% currency depreciation.

On a quarter-on-quarter basis, profits decreased by 27% due to higher exploration costs and a 1% currency appreciation.

The Fertilizer sector witnessed an exceptional growth of 165% year-on-year, driven by a 13% increase in Urea offtakes, higher bag prices, and inventory gains.

Similarly, profitability grew by 69% quarter-on-quarter for fertilizer companies.

The Cement sector recorded a 30% year-on-year decline in earnings in the third quarter of fiscal year 2024, primarily due to the absence of a one-off gain recorded by LUCK in the same period last year.

Excluding LUCK, sector earnings increased by 2% year-on-year. On a quarter-on-quarter basis, earnings decreased by 11% due to a fall in domestic dispatches.

Despite the 4% year-on-year decline in earnings, dividend payments by KSE100 index companies increased by 24% year-on-year to Rs114 billion, with a payout ratio of 27%.

However, on a quarter-on-quarter basis, payouts decreased by 45%, as many companies typically pay dividends at the end of the fiscal year or semi-annually, which generally occurs in the June and/or December quarter.

This brings the total dividends for the first nine months of fiscal year 2024 to Rs425 billion, up 29% year-on-year, with a payout ratio of 32%. The Companies’ Profit Swelled to Rs 1.6 Trillion in 2023

The banking sector remained the top contributor to dividend payments in absolute terms, amounting to Rs64 billion, with a sector payout ratio of 43%.

Fertilizer companies led in terms of payout ratio, with 52% of earnings distributed to shareholders as dividends, totaling Rs24 billion.

The E&P sector’s payout ratio remained sluggish at 11%, compared to the previous quarter’s ratio of 27%, as two companies in this sector, POL and MARI, have a semi-annual payout frequency in June and December.

Additionally, for the first time in 13 years, since March 2011, PPL announced a dividend of Rs1 per share in the third quarter.Shell Witnesses Hefty Increase in Profits for Q3 2023

The Independent Power Producers (IPPs) sector also saw a decline in payout ratio to 19% in the outgoing quarter, compared to 49% in the previous quarter, mainly due to a lower dividend announcement by HUBC of Rs3.5 per share.