PMPK in 9MCY22

Thanks to exceptionally strong performance in the post-budget quarter, the country’s second-placed cigarette maker registered strong double-digit growth in its operating profitability in the first nine months of the calendar year. During the Jul-Sep quarter of 2022, Philip Morris (Pakistan) Limited (PSX: PMPK) net turnover grew by 35 percent year-on-year to Rs4.8 billion, its operating profit jumped by 75 percent year-on-year to Rs1.18 billion, and its net profits surged by 240 percent year-on-year to Rs842 million.

As per the latest PMPKfinancial results posted to the bourse, the firm’s net turnover had improved by 17 percent year-on-year to reach nearly Rs15 billion in 9MCY22. The growth in net turnover seems to have come about due to higher retail prices of cigarette packs and an improved share of net turnover in gross turnover (as seen in 1HCY22 results). The Jul-Sep quarter revenues especially reflect the impact of government raising the cigarettes-related FED on both price tiers.

However, the ‘cost of sales’ rose by 21 percent year-on-year to Rs8 billion during 9MCY22, reflecting elevated pressures from rising cost of materials, utilities and other inputs. This growth rate was higher than the topline growth, thereby consuming 54 percent of the net turnover, almost two percentage points higher than in 9MCY21. As a result, gross margin went down by the same magnitude to reach 46 percent.

PMPK did well to curtail its administrative expenses (down 8% YoY) and keep its distribution and marketing expenses (up only 3% YoY) in check. While ‘other expenses’ nearly doubled to consume Rs755 million in the analysis period (mainly due to exchange losses), the strong growth in ‘other income’ (up 81% YoY to Rs1.01 billion, mainly due to much higher profits on saving accounts) more than offset that depletion.

As a result, the operating profitability crossed the Rs4 billion mark in the nine-month period, growing by 28 percent year-on-year. This led to an operating margin of 26.7 percent, an improvement of 233 basis points relative to 24.4 percent seen in 9MCY21. In the end, the after-tax profits grew by 15 percent year-on-year to Rs2.37 billion. This growth rate was proportionally lower than operating profit growth, mainly due to the super-tax-related impact on pre-tax profits in the secondquarter of the calendar year.

Thanks to remarkable results posted in 3QCY22 performance, the Marlboro maker looks poised to close CY22 with its all-time-high topline and bottomline. Let’s see if the management can carry on this growth momentum in the final quarter of the year.