KSE-100 Profitability Soars by 155% in Just Two Years

The profitability of the KSE-100 index in January-March of the financial year 2021-22 has increased by 155 percent in just two years.

According to a report compiled by Arif Habib Limited (AHL), the profitability of the benchmark index continues to soar, posting a jump of 34 percent year-on-year (YoY) during the quarter that ended on March 31, 2022. The report represents almost 95.0 percent of the market capitalization of the benchmark bourse.

Albeit, ex-oil, the growth trims down to just 9 percent YoY. Earnings growth was led by the heavy-weight Commercial Banks sector given the recent interest rate hike. This was followed by the Fertilizer sector, in lieu of augmented urea prices coupled with a 17 percent YoY upturn in urea offtake.

The Oil and Gas Exploration sector also posted a noteworthy jump on the back of a significant rise in international oil prices amidst the Russia-Ukraine conflict. Whereas the cement sector posted a muted growth whereby the impact of higher retention prices was partially offset by the surge in coal prices. The Oil and Gas Marketing sector did exceptionally well with its bottom-line aided by hefty inventory gains booked during the quarter.

Other notable results were displayed by the Textile Composite (given Rupee’s depreciation) and Refinery sector (inventory gains). Pertinently, earnings upturn on a quarter-on-quarter (QoQ) basis arrived at 28 percent whereas they were propelled by a massive 155 percent compared to 3QFY20. With that said, profitability during 9MFY22 augmented by 23 percent YoY to Rs. 822 billion. Earnings of the index also improved by a stunning 93 percent YoY when compared to the 9MFY20 period.

The jump in profitability has been broad-based with only 4 sectors amongst the top 15 heavy-weighted sectors posting a loss. During 3QFY22 / 1QCY22, major contributors to the rise in KSE-100 index earnings growth include Oil & Gas Marketing Companies, Glass & Ceramics, Miscellaneous, Refinery, Textile Composite, Oil & Gas Exploration, Textile Spinning, Automobile parts, and Commercial Banks, generating a bottom-line of Rs. 39.3 billion (+222 percent YoY), Rs. 1.9 billion (+119 percent YoY), Rs. 0.8 billion (+97 percent YoY), Rs. 5.1 billion (+87 percent YoY), Rs. 9.0 billion (+79 percent YoY), Rs. 81.0 billion (+77 percent YoY), Rs. 1.5 billion (+46 percent YoY), Rs. 1.3 billion (+34 percent YoY), and Rs. 79.2 billion (+28 percent YoY), respectively. Notable sectors that posted a muted growth include Fertilizer (+8 percent YoY; Rs. 27.0 billion) and Cement (+2 percent YoY; Rs. 14.5 billion).

In comparison, earnings of other heavy-weighted sectors such as Technology and Power generation contracted by 66 percent (PAT of Rs. 1.7 billion) and 36 percent (PAT of Rs. 10.0 billion), respectively. While Investment Banks and the Engineering sector also showed an earnings decline of 6 percent (PAT of Rs. 3.6 billion), and 65 percent (PAT of Rs. 2.6 billion), respectively.

On a sequential basis, KSE-100 index earnings posted a 28 percent growth QoQ, led by Banks (+19 percent) attributable to higher effective interest rate, Fertilizer (+25 percent) owed to escalated urea prices, Oil & Gas Exploration (+28 percent) amid higher average oil prices, Cement (+4 percent) aided by topline growth following hikes in cement prices, Power Generation (+18 percent) as HUBC recognized a share of loss from associate and joint venture of Rs. 1,462 million in the last quarter. While Automobile Assembler and Engineering sectors posted a decline in earnings of 9 percent and 32 percent QoQ, respectively in lieu of the Rupee’s depreciation and inability to pass on the impact of augmented input costs.

Earnings jump of 23 percent YoY during 9MFY22 was fueled by heavily weighted sectors including Commercial Banks which posted profits of Rs. 211.9 billion (+18 percent YoY), Oil & gas exploration sector registering earnings of Rs. 209.1 billion (+52 percent YoY), Cement displaying a cumulative bottom-line of Rs. 40.8 billion (+30 percent YoY), Technology (PAT of Rs. 1.7 billion compared to a loss in 2Q) and Automobile Assembler generating profitability of Rs. 21.0 billion (+44 percent YoY). On the flip side, major laggards during 9MFY22 were Fertilizer (earnings dip of 8 percent YoY), and Technology which posted a loss of Rs. 9.3 billion.

On a sequential basis, during 3QFY22, the KSE-100 posted a positive return of 334 points, up by 0.75 percent. The fertilizer sector remained the best performer adding 605 points from the index, followed by Auto Assemblers (+196 points), Power (+172 points), Banks (+171 points), and Textile composite (+107 points).

During 9MFY22, the KSE-100 index was down by -5.1 percent (-2,427 points). The cement sector remained the worst-performing sector, eroded 1,256 points followed by Technology (-687 points), OMCs (- 444 points), Pharmaceutical (-419 points), Refinery (-346 points) Engineering (-309 points), and Modarabas (-180 points). However, the Baking sector added 953 points to the index followed by Fertilizer (+758 points) and Textile Composite (+243 points).

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