High margins for Pakistan Tobacco

Pakistan's largest tobacco company Pakistan Tobacco Company Limited (KSE: PAKT) is in pretty good shape. The smokers love for the stick is pretty much intact it appears.

The firm's net turnover grew significantly during the period. The company has achieved volumetric growth during the period but similar to other cigarette manufactures it also raised the prices of its brands.

The company after showing a significant increase in its top line was able to keep its core cost in check. The cost control largely came from decline in international oil prices resulting in lower raw material and packaging costs for the company. As a result, gross margin went considerably up in 9MCY2015.

To defend its market share from the swarm of illicit cigarettes, PAKT strengthened its distribution network to target both urban and rural areas.

This has helped the company to push its low-priced brand, Capstan by Pall Mall, which enjoys popularity among the low-income working class. But it has also increased the distribution cost for the company.

In 2014 alone, illicit trade in cigarettes accounted for almost 23 percent of the total market in Pakistan, this translated into around 18.6 billion cigarettes.

With all these issues, PAKT has performed significantly well thanks to strong supply chain and the strong feet on the ground.