KARACHI: Listed consumer companies saw profits plummet 26 percent to Rs57.8 billion during the last calendar year, facing the snowball reaction of tumbling economic activities, a brokerage report showed on Tuesday.
However, consumer firms, listed on the Pakistan Stock Exchange, recorded a marginal three percent decline in sales to Rs773.4 billion in 2019, Topline Research’s data based on financials of 20 companies accounting for one-third of market capitalisation.
Analyst Sunny Kumar said the overall slowdown in economic activity took its toll on consumers’ purchasing power. Sales of consumer discretionary, covering Indus Motors, Thal Limited, Honda Car, declined 23 percent year-over-year as opposed to five-year compound annual growth rate (CAGR) of three percent.
Turnover of consumer staples and pharmaceuticals – Nestle, Packages, Colgate, Glaxo and Abbott – rose seven percent and seven percent year-over-year as against five-year CAGR of eight and 16 percent, respectively. Their profitability was, however, down 13 percent apiece.
“We largely believe sales have bottomed out in the 3Q2019,” Kumar said. “However, the impact of coronavirus can affect their sales and costs due to supply chain disruptions if the country moves towards a complete lockdown to contain the virus.”
Overall, gross margins of consumer firms fell 0.7 percentage points to 23.9 percent in 2019, as companies were unable to fully pass on the impact of higher costs due to rupee devaluation.
Kumar said the increase in sales within the staples segment was largely broad based, where higher revenues were largely driven by increase in prices to pass on higher costs due to currency devaluation, while in some cases volumes also declined year-over-year. Annual revenue of Nestle with a 28 percent weight in consumer firms fell four percent. Frieslandcampins Engro Foods and Colgate led consumer staples with sales growth of 20 percent each.
Gross margins of the staples business shrunk 1.4 percentage points to 28.4 percent, as the companies were unable to fully pass on the impact of high cost of doing business, including higher taxes, and also due to loss of operational efficiencies. In staples, notable decline in gross margins was seen in Murree Brewery (6.8 percentage points to 26 percent) and Philip Morris (5.8 percentage points to 31 percent).
Pharmaceuticals’ sales were up seven percent year-over-year due to price increase and higher volumes. AGP and Searl ruled the roost with sales growth of 16 and 12 percent, respectively. However, gross margins ratcheted down 2.4 percentage points to 31.2 percent, as price increase on the basis of recent increase in costs linked to consumer inflation would be applicable from July 1 this year.
Gross margins of Abbott declined 4.6 percentage points to 28, followed by Glaxo (3.7 percentage points to 21 percent) and SEARL (1.8 percentage points to 47 percent). Discretionary firms reported significant decline of 23 percent in sales, as purchasing power of consumers took a major hit due to slowdown in overall economic activity.
The decline was in spite of multiple price hikes in auto sector, as volumes during the period witnessed over 25 percent contraction. The sector’s gross margins fell 2.73 percentage points to 10.1 percent with Indus Motors and Thal Limited witnessing notable declines.