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Business & Finance

Profitability of KSE-100 companies grows 9.4% in 2022: report

  • Economic slowdown, external risks, rupee devaluation limit gains
Published March 1, 2023

The profitability of KSE-100 index grew 9.4% in 2022 on a year-on-year basis despite domestic economic slowdown, risk to external sector, imported inflation and pressure on rupee, reported brokerage house Arif Habib Limited on Wednesday.

“Barring the impact of super tax, growth could have been much higher since profit before tax (PBT) jumped up by 29.8% in CY22,” the research house said in a report ‘KSE-100 Index Profitability’.

The jump in earnings was led by the 15.5% growth in index-heavy commercial banks sector to Rs302bn, owed to a striking increase in interest rates, however, the PBT growth was much more impressive at 42.6% as the bank booked a heavy super tax charge during the year, which shrunk profit after tax (PAT) growth.

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“This was followed by another heavy weight, the oil and gas exploration sector (+33.3% year-on-year to Rs300 billion) given higher oil prices post Russia-Ukraine conflict, and exchange gains booked amid rupee depreciation,” the report said.

The cement sector also impressed with a 14.5% jump in earnings to Rs61 billion in lieu of higher retention prices and use of cheaper coal from Afghan and local market during the year, which offset the impact of volumetric decline (-16% year-on-year), hike in energy tariff as well as rupee depreciation, it added.

According to the report, the 11.4% jump in earnings of the oil and gas marketing sector (to Rs68 billion) was supported by inventory gains.

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The profitability of the chemical sector (+2.2% year-on-year to Rs38 billion) was aided by higher PTA margins and rupee depreciation.

The refinery segment displayed a four-fold surge in profitability to Rs25 billion due to inventory gains and higher GRMs.

“On the other hand, the sectors that remained laggards in CY22 include fertiliser (-16.7% year-on-year to Rs64 billion) as DAP sales were impacted (-36% year-on-year) by high prices, coupled with imposition of super tax, which axed the bottom-line.”

In addition, the technology sector witnessed a 10.8% year-on-year contraction in profitability to Rs11 billion, particularly given loss booked by PTC, it said.

As per the report, earnings of the power sector shrunk by 42.8% year-on-year to Rs24 billion as K-Electric posted a loss in CY22.

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Finally, the automobile and steel (engineering) sectors came under pressure as margins were slashed due to LC issues and high input (scrap and HRC) prices, rupee depreciation and augmented energy tariff, as well as increase in borrowing costs (interest rate hikes), which eroded the profit after tax by 45.1% and 75.4% year-on-year to Rs18 billion and Rs5 billion, respectively, the report added.

“During CY22, the KSE-100 index went down by -9.4% (-4,176 points). Banking sector remained the worst performing sector, eroding 1,844 points followed by cement (-1,391 points), pharmaceuticals (-494 points), engineering (-301 points), and food (-295 points),” stated AHL. “On the other hand, key gainers were fertiliser (619 points), power (312 points), technology and communication (287 points) and chemical (103 points).”

The report based its analysis on KSE-100 index companies. It included the result of 83 companies as the remaining 17 companies have not disclosed their results yet.

“The companies which have been included in our analysis represent almost 86.6% of the market capitalisation of the benchmark bourse,” it said.

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