KSE-100 index companies’ profitability has grown by 37% YoY in 3QFY22, significantly higher than the last 5-years and 10-years CAGRs of 12% and 17%, respectively. The increase in profitability has largely been led by Oil & Gas Exploration (E&Ps), Oil & Gas Marketing (OMCs) and Banks – with profits growing by 77% YoY, 222% YoY and 29% YoY, respectively.

Excluding these three sectors, the KSE-100 index profitability increased by 5% YoY in 3QFY22. Other sectors like Textile, Fertilizers and Refinery also gave major support during 3QFY22, with profitability growths of 50% YoY, 20% YoY and 87% YoY, respectively.

Only three out of sixteen sectors, i.e. (1) Power, (2) Engineering, and (3) Cements sector, reported a decline in profits during the quarter, with earnings dropping by 45% YoY, 62% YoY, and 19% YoY, respectively.

Though the profits are rising, concern remains about the quality of these earnings. A significant percentage of the payments are not cash earnings due to circular debt and piling up of receivables for companies in the energy chain.

Companies like OGDC, PPL, PSO, HUBC etc., have reported strong profitability growth, but their cash profits worsen.

Net sales of KSE-100 index companies are up by 49% YoY during 3QFY22, while gross profit margins declined by 3% to 23.5%. In 9MFY22, the profitability of the KSE-100 index was up 29% YoY, led by E&Ps, OMCs and Banks.

The dividend payout fell by 9% YoY to Rs57bn despite high profit. This is probably due to circular debt affecting the cash flow of companies.

Courtesy – Topline Securities