Pakistan Tobacco Company Limited (PSX: PAKT) was incorporated in Pakistan as a public limited company in 1947. The company is a subsidiary of British American Tobacco (Investments) Limited, UK while British American Tobacco p.l.c, UK is the ultimate parent company of PAKT. The principal activity of the company is the manufacturing and sale of cigarettes/tobacco.
Pattern of Shareholding
As of December 31, 2024, PAKT has a total of 255.494 million shares outstanding which are held by 3440 shareholders. Associated companies, undertakings and related parties (which comprise of British American Tobacco (Investments) Limited and Rothmans International) are the major shareholders of PAKT with a stake of 94.7 percent in the company. General public accounts for 1 percent shares of PAKT.
Banks, DFIs and NBFIs also hold 1 percent shares. 0.9 percent of the company’s shares are held by Modarabas and Mutual funds and 0.3 percent by Insurance companies. The remaining shares are held by other categories of shareholders.
Historical Performance (2019-24)
With the exception of 2019, PAKT’s topline has posted growth in all the years under consideration. Its bottomline also strengthened in all the years except for a downtick recorded in 2024. PAKT’s margins which enjoyed an upsurge until 2020 tapered off for the subsequent two years barring operating margin which posted marginal improvement in 2022.
In 2023, PAKT’s margins registered phenomenal growth which was followed by a decline in 2024. The detailed performance review of the period under consideration is given below.
In 2019, PAKT’s net sales dropped by 2.14 percent year-on-year to clock in at Rs.51,974.90 million. While gross turnover in 2019 was 8.7 percent higher than the previous year, higher sales tax and excise duty culminated into a fall in net sales. In 2019, the company exported for the very first time in its history.
PAKT exported over 0.19 billion cigarettes and 3 million kilograms of raw tobacco with a collective worth of $11 million to GCC and other Middle Eastern countries in 2019. Despite embarking on its export journey in 2019, PAKT’s overall sales volume dropped by 15 percent year-on-year in 2019 to clock in at 39.14 billion sticks. This was on the back of two excise led price hikes – in September 2018 and in June 2019 which led customers to switch to illicit products which were much cheaper due to non-payment of duties and taxes.
Cost of sales nosedived by 13.62 percent year-on-year in 2019. Gross profit grew by 12.57 percent year-on-year in 2019 with GP margin jumping up from 43.84 percent in 2018 to 50.43 percent in 2019. This was the result of higher margin on export sales due to depreciated local currency. Distribution expense inched down by 5.74 percent year-on-year in 2019 owing to lower sales volume.
Administrative expense grew by 8.69 percent year-on-year in 2019 mainly on account of expenses incurred on information technology. Other expense posted a significant 35.47 percent year-on-year spike in 2019 due to higher provisioning done for WWF and WPPF as well as higher exchange loss due to depreciation in the value of local currency. Other income posted a robust growth of 340.66 percent year-on-year in 2019 on account of gain on the disposal of property, plant and equipment and recharges/other payments to associated companies written back during the year. This resulted in 21.30 percent year-on-year growth in operating profit of PATK in 2019 with OP margin climbing up to 34 percent from OP margin of 27.43 percent recorded in 2018.
The company’s capital structure mainly comprised of equity with a small portion of non-current liabilities. Moreover, the company was actively engaged in efficient working capital management and investment of surplus funds which culminated into net finance income in all the years under consideration. Net finance income dropped by 13.94 percent year-on-year in 2019 due to increase in lease liabilities. Bottomline grew by 24.68 percent year-on-year in 2019 to clock in at Rs.12,899.23 million with NP margin of 24.80 percent versus NP margin of 19.46 percent posted in 2018. EPS also grew from Rs.40.46 in 2018 to Rs.50.45 in 2019.
In 2020, PAKT’s net sales grew by 17.15 percent year-on-year to clock in at Rs.60,890.51 million. This was despite 7 percent decline in the sales volume of the company which clocked in at 38.504 billion sticks. 93 percent increase in the excise duty in the last two budgets had created wider difference between the prices of legal brands and duty not paid (DNP) brands. DNP brands further reduced their prices by 25 percent after 2020-21 budget, incentivizing consumers to switch to cheaper alternatives.
The increase in net sales in 2020 was the result of price increase and also because the company exported 2.3 billion cigarette sticks and 4.1 million kilograms of raw tobacco in 2020, which translated into export revenue of $31.1 million. Despite 7 percent drop in overall sales volume, cost of sales surged by 13.83 percent year-on-year in 2020 due to inflation, Pak Rupee depreciation and supply chain malfunction owing to COVID-19.
Higher export sales and upward price revisions resulted in 20.42 percent year-on-year growth in gross profit with GP margin rising up to 51.83 percent in 2020. The company launched VELO nicotine pouches and VELO sound station which resulted in 7.49 percent increase in distribution cost in 2020. Administrative expense also grew by 20.78 percent year-on-year on the back of an increase in information technology expense in 2020. Other expense rose by 11.71 percent year-on-year in 2020 due to higher provisioning done for WWF and WPPF.
Conversely, other income plunged by 4.42 percent in 2020 due to a dip in the recharges/other payments to associated companies written back in 2020 and one-off gain on the disposal of property, plant and equipment recorded in 2019. Operating profit grew by 23.60 percent year-on-year in 2020 with OP margin escalating to 35.88 percent. Net finance income tumbled by 11.12 percent year-on-year due to increase in lease liabilities in 2020. Net profit grew by 27.96 percent year-on-year in 2020 to clock in at Rs16,492.49 million with NP margin of 27 percent. EPS also rose to Rs64.55 in 2020.
In 2021, PAKT’s net sales mustered 23.15 percent growth to clock in at Rs.74,987.75 million. This came on the back of 19 percent year-on-year rise in sales volume which clocked in at 43 billion sticks. This was the result of excise stability in 2021-22 budget which allowed price stability to the legitimate brands. During 2021, the company exported 1.6 billion cigarette sticks and 6.4 million kilograms of raw tobacco, culminating into export revenue of $38.4 million. Cost of sales grew by 33.29 percent year-on-year in 2021 which pushed the GP margin down to 47.87 percent in 2021.
Distribution expense remained largely stable in 2021 despite increased volume as the company incurred increased selling expense in the previous year owing to the launch of VELO. Administrative expense multiplied by 18.79 percent year-on-year in 2021 due to increased spending on automation which drove up the IT cost. Other expense posted a marginal 1.81 percent year-on-year uptick as provisioning for WPPF and WWF grew while foreign exchange loss slid during 2021. Other income slashed by 3.27 percent year-on-year in 2021 as there were lesser recharges to associated companies that were written off during the year.
Operating profit grew by 16.73 percent year-on-year in 2021 but OP margin fell to 34 percent. Net finance income grew by 30.43 percent year-on-year in 2021 as the company had better liquidity position in 2021 and more funds available to be invested in Treasury bills. Net profit climbed up by 14.37 percent year-on-year in 2021 but NP margin ticked down to 25.15 percent. EPS ascended to Rs.73.83 in 2021.
The growth trajectory continued in 2022 with 26.5 percent year-on-year growth in PAKT’s topline which clocked in at Rs.94.862.24 million in 2022. This was on account of multiple price hikes on the back of increase in excise duty, inflation as well as Pak Rupee depreciation. Sales volume shrank by 1 percent year-on-year to clock in at 42.5 billion sticks as the price increase of the legitimate brands further incentivized the DNP brands.
Export turnover slipped by 18 percent in 2022 due to losing of certain export markets on account of price inefficiency. Export volume stood at 1.4 billion cigarette sticks and 4.4 kilograms of tobacco in 2022 which resulted in a turnover of $27.6 million.
Besides, PAKT also exported human resource services of $1.5 million in 2022. Cost of sales soared by 27.15 percent year-on-year, taking its toll on the GP margin which slipped to 47.60 percent in 2022. Distribution expense grew by 14.12 percent year-on-year in 2022 on the back of higher payroll expense and selling expense. Administrative expense largely remained in check and posted a meager 0.95 percent hike in 2022.
Other expense magnified by 54.9 percent year-on-year which was the result of a massive surge in foreign exchange loss on account of local currency depreciation coupled with higher provisioning for WWF and WPPF in 2022. Conversely, other income sank by 8.32 percent year-on-year due to lower write offs of payables to associated companies in 2022.
Operating profit ascended by 28.58 percent year-on-year in 2022 with a slight increase in the OP margin which stood at 34.56 percent in 2022. Net finance income posted a staggering growth of 175.25 percent in 2022 due to better cash position and high discount rates. While profit before tax grew by 32.54 percent year-on-year in 2022, the imposition of 3.87 percent super tax diluted the bottomline growth. Net profit grew by 13 percent year-on-year in 2022 to clock in at Rs21320.93 million with NP margin of 22.48 percent. EPS grew to Rs.83.45 in 2022.
In 2023, PAKT registered 15.89 percent year-on-year growth in its net revenue which stood at Rs.109,932.87 million. This was the result of over 100 percent price hike due to increase of over 200 percent in FED. This further created disparity between the prices of duty paid and DNP brands leading to 32 percent decline in PAKT’s sales volume in 2023. However, the company improved its export revenue by 74 percent during 2023 by exporting 1.3 billion cigarette sticks, 2.9 million kgs of cut-rag tobacco and 6 million kgs of unmanufactured tobacco.
Moreover, PAKT also export human resource services worth $1.3 million in 2023. High inflation, Pak Rupee depreciation, spike in energy tariff and severe shortage of tobacco leaf sought to drive the cost up, however, curtailed capacity utilization of 50 percent due to depressed demand of the legitimate brands coupled with no royalty paid during the year and provision for severance benefits resulted in 31.72 percent improved gross profit recorded by PAKT in 2023. GP margin climbed to its highest level of 54.10 percent in 2023.
Distribution expense mounted by 20.31 percent in 2023 due to increased salaries and selling expense incurred during the year. PAKT introduced Capstan International, a value-for-money brand during 2023. 42.40 percent higher administrative expense incurred by PAKT in 2023 was due to higher IT expense and payroll expense incurred during the year.
Higher profit related provisioning and exchange loss resulted in 20.65 percent higher other expense in 2023. Other expense was partially offset by 219.58 percent higher other income recorded during the year on the back of reimbursement of expenses by associated companies. Operating profit improved by 37.31 percent in 2023, resulting in OP margin of 40.95 percent.
PAKT was able to expand its finance income by 156.52 percent in 2023 due to increased Treasury bill investments and higher discount rate. Net profit built up by 35.83 percent year-on-year to clock in at Rs.28,959.66 million in 2023 with EPS of Rs.113.35 and NP margin of 26.34 percent.
In 2024, PAKT’s topline boasted year-on-year growth of 10.14 percent to clock in at Rs.121,077.80 million. Stability in the FED allowed the company to achieve volumetric growth of 1.9 percent in 2024. During the year, the company exported 1.3 billion cigarette sticks, 47 million oral nicotine pouches and 4.8 million kgs of unmanufactured tobacco. This resulted in export revenue of $36 million in 2024.
One of the notable steps taken by the government during the year was to introduce adjustable FED on the key inputs of cigarette i.e. Acetate Tow and Filter rods at Rs.44,000 per kg and Rs.80,000 per kg respectively. This step was to curb the illicit industry at the quantum level. During the year, the government also increased FED on E-liquids from fixed rate of Rs.10,000 per kg to the higher of Rs.10,000 per kg or 65 percent of the retail price which forced PAKT to exit the E-liquid category.
Cost of sales heightened by 21.43 percent in 2024 on account of inflationary pressure and tobacco leaf crop shortage in the previous year which pushed the prices up. Gross profit inched up by 0.56 percent in 2024 with GP margin falling down to 49.40 percent. Distribution expense ticked up by 4.75 percent in 2024 due to higher salaries of sales force, freight charges and finished goods/wrapping material written off during the year.
Administrative expense tumbled by 13 percent in 2024 due to decline in Information technology expense. PAKT recorded 14.39 percent plunge in other expense in 2024 due to lesser profit related provisioning done during the year. Other income fell by a massive 89.55 percent in 2024 as the company didn’t recognize income from services rendered to its associated company, BAT Middle DMCC, UAE.
Moreover, there was no reimbursement of expenses by the same associated company in 2024. PAKT recorded 1.27 percent thinner operating profit in 2024 with OP margin falling down to 36.71 percent. Net finance income ticked up by only 1.17 percent in 2024 due to thinner finance income due to lesser funds available for investment in Treasury bills and the onset of monetary easing during the year.
The imposition of normal tax on export sales further suppressed the company’s profitability resulting in 4.1 percent year-on-year decline in net profit which clocked in at Rs.27,782.93 million in 2024. This translated into EPS of Rs.108.74 and NP margin of 22.95 percent.
Recent Performance (1QCY25)
During the first quarter of the ongoing calendar year, PAKT posted year-on-year jump of 28.22 percent in its net sales which clocked in at Rs.30,650.105 million. During the period under review, the company aggressively invested in its oral nicotine product “VELO” which posted 22 percent growth.
Domestic and export sales of cigarette also increased during 1QCY25. Cost of sales surged by 27.33 percent during 1QCY25 on account of high inflation and elevated leaf prices.
However, with better sales volume and periodic price increase, the company was able to record 29.31 percent stronger gross profit in 1QCY25 with GP margin clocking in at 45.23 percent versus GP margin of 44.85 percent recorded in 1QCY24. Distribution expense ticked down by 17.77 percent in 1QCY25 probably because the company wrote off a massive finished goods/packing material stock in the previous year.
Administrative expense shrank by 10.71 percent during the period seemingly due to streamlining of the company’s operations and a downtick in IT expense. Increased profit related provisioning resulted in 67.36 percent higher other expense in 1QCY25. Other income deteriorated by 98.14 percent during the period seemingly due to no reimbursements from the associated companies. Operating profit improved by 42.26 percent in 1QCY25 with OP margin recorded at 34.53 percent versus OP margin of 31.12 percent recorded in 1QCY24.
Net finance income drastically declined to the tune of 98 percent in 1QCY25 due to monetary easing and lesser availability of surplus funds for investment. Net profit picked up by 21.96 percent to clock in at Rs.6266.14 million in 1QCY25 with EPS of Rs.24.53 versus EPS of Rs.20.11 recorded in 1QCY24. NP margin slightly dipped from 21.49 percent in 1QCY24 to 20.44 percent in 1QCY25.
Future Outlook
High share of illicit tobacco in the domestic market is swallowing the share of the legitimate tobacco industry. The government took steps to protect the legal tobacco industry by keeping the FED stable in 2024 and by taxing the inputs of the tobacco industry. However, the effect of these measures is yet to be seen. PAKT is striving to explore new export avenues particularly in South America and investing in reduced risk product portfolio in line with its parent company’s agenda.
Copyright Business Recorder, 2025