KSE 100 index companies posted record earnings (PAT) of Rs. 1.2 trillion up 16 percent year-on-year (YoY) in fiscal year 2022-23 (FY23) compared to FY22’s growth of 23 percent, according to a report by Topline Securities Ltd.
The profit growth in FY23 was in line with the last 10-year average growth of 13 percent for KSE 100 index companies.
This growth in earnings is majorly contributed to by the banking sector (+68 percent YoY) and the E&P sector (+69 percent YoY) in FY23. Excluding banks and E&Ps, KSE index companies’ profitability was down 32 percent YoY.
In US Dollar terms, PAT was down 17 percent YoY to $4.9 billion against growth of 11 percent in FY22. Excluding banks and & E&Ps, the PAT was down 51 percent YoY in FY23.
Banks’ earnings were up 68 percent YoY to Rs. 421 billion (35 percent of total KSE index profitability) in FY23, primarily driven by higher Net Interest Income (NII) amid the highest-ever interest rates.
Similarly, E&Ps’ profits were up 69 percent YoY to Rs. 415 billion (34 percent of total KSE index profitability) due to significant rupee devaluation as their revenues are dollar-linked.
Though, the profits of E&Ps are rising but concern remains on the quality of these earnings as a significant percentage of the earnings are not cash earnings due to circular debt and piling up of receivables for companies in the energy chain.
Other sectors like OMCs, power, and automobile, recorded a decline in earnings during FY23, with a profitability decline of 88 percent YoY, 90 percent YoY, and 94 percent YoY, respectively.
Pre-tax earnings (PBT) of KSE index companies increased by 19 percent YoY to Rs. 2.1 trillion in FY23 against 46 percent YoY in FY22. A higher tax of Rs. 887 billion in FY23 also affected after-tax earnings.
Net sales of KSE index companies were up by 34 percent YoY in FY23. However, gross margins declined to 21 percent in FY23 as compared to 23 percent in FY22.
Topline mentioned that for its analysis, it has taken 87 companies out of the total 100 companies (that have announced their results), which represents 96 percent of KSE-100 market capitalization and 82 percent of total market capitalization. We estimate that adding the remaining companies to the Index would not materially impact profitability growth trends.