Record Corporate Profitability in 1QFY24; Earnings up 52%
Staff Report
KSE index companies recorded the highest-ever quarterly earnings (PAT) of Rs 417 billion, up 52% YoY (an increase of 16% YoY in US$) in 1QFY24, exceeding the 10-year average growth of 13%.
Pre-tax earnings of KSE index companies also increased by 58% YoY to Rs 729 billion (a 22% YoY increase in US$) in 1QFY24.
The significant increase in corporate profitability can be attributed to economic recovery, the resolution of LC issues, a slowdown in inflation, and a stable currency.
Banks and the OMC sector were the primary contributors to earnings. Excluding Banks and OMCs, earnings stood at Rs 238 billion, up 23% YoY.
Banks (which are part of the KSE 100 index) saw their earnings rise by 85% YoY to Rs 149 billion, accounting for 36% of the total KSE index profitability in 1QFY24. This increase was primarily driven by higher Net Interest Income (NII) amid the highest-ever interest rates.
Similarly, OMCs’ earnings reached Rs 30 billion in 1QFY24, compared to Rs 0.8 billion in 1QFY23. This substantial increase is primarily attributed to inventory gains.
However, concerns remain regarding the quality of earnings for OMCs and E&Ps, as a significant percentage of their earnings are not in cash due to circular debt and accumulating receivables for companies in the energy chain.
Other sectors like fertilizer, Refinery, and Automobile also provided major support during 1QFY24, with a YoY increase in profitability of Rs 21 billion, Rs 16 billion, and Rs 11 billion, respectively.
On a QoQ basis, after-tax earnings increased by 33% in 1QFY24. However, pre-tax earnings increased by 10% QoQ due to higher tax expenses recorded in the last quarter, amid a 10% super tax.
For our analysis, we have considered 94 companies (unconsolidated accounts) out of the total 100 companies that have announced their results.
These companies represent 97% of the KSE-100 market capitalization and 80% of the total market capitalization. We estimate that adding the remaining companies to the index would not materially impact the profitability growth trend.
