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After scoring an all-time high gross turnover of Rs166 billion and record profitability of Rs16 billion last year, the leading cigarette manufacturer has been off to a stellar start in 2021. As per financial results sent to the bourse for the quarter ended March 31, 2021, the Pakistan Tobacco Company (PSX: PAKT) recorded handsome growth with quarterly gross turnover reaching Rs49 billion and net profit Rs4.5 billion.

PAKT’s domestic turnover grew by 28 percent year-on-year to reach Rs48 billion in 1QCY21, even as exports revenues remained sticky around Rs1 billion mark. Considering that the price of cigarette packs in the analysis period has grown in only low single digits as per PBS price data, the majority of the growth in turnover seems to have come from an uptick in volumes of cigarettes sold in the market. In terms of gross sales, excise duty collection equated 48.3 percent and sales tax 15 percent in the quarter under review. The fact that excise duties grew less-than-proportional relative to gross turnover suggests that the topline expansion has mostly taken place in lower FED tier.

As a result, the effective FED rate (excise duties divided by gross turnover) of 48.3 percent in the quarter under review is almost one percentage point lower compared to 49.3 percent in 1QCY20. Recall that the FED rate had stood at 48.7 percent in CY20, down from 50.2 percent the previous year.

Net turnover crossed Rs18 billion in the quarter, with a yearly growth of 30 percent. Some 37 percent of gross sales was retained as net sales, just as PAKT had retained 37 percent of its gross sales as net sales in CY20. That the bottomline expanded by 59 percent, which is more-than-proportional growth compared to 27 percent growth in gross turnover, is explained mainly through cost efficiencies. The combined spending on cost of sales, administrative expenses, selling expenses and other operating expenses reached Rs12 billion in the quarter, up by 20 percent year-on-year. But this growth is below topline growth. Hence, cost of sales accounted for 19 percent of gross turnover, lower by one percentage point compared to 1QCY20. Combined, the administrative, selling and other operating expenses exhausted 5.5 percent of gross sales, lower by half percentage points compared to 1QCY20.

In the end, PAKT clocked another strong quarter with a significant growth in the bottomline. It remains to be seen what treatment the upcoming budget gives to FED rate, for any changes up or down in duties will have consequences for the market leader’s financials going forward.

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