KARACHI: Pakistan consumer companies (Staples, Pharmaceuticals and Discretionary) profitability has declined by 7 percent on year-on-year basis in the first quarter of 2020.
Category-wise, pharmaceuticals witnessed a significant increase of 37 percent on year-on-year in profits, followed by Consumer Staples which remained largely stagnant (up 1.0 percent YoY), while the profitability of Consumer Discretionary (mainly autos) fell by 39 percent YoY.
Overall, slowdown in economic activity and country-wide lockdown that starting during the last week of March-2020 in the wake of COVID-19, resulted in lower consumers' purchasing power, Sunny Kumar at Topline Securities said.
The sales of Consumer Discretionary as a result have declined significantly by 32 percent on YoY against decline of 38 percent in the fourth quarter of 2019). However, the turnover for the other two segments, i.e. Staples and Pharmaceuticals, witnessed an uptick of 8 percent YoY and 7 percent YoY, respectively (up 7 percent YoY and up 12 percent YoY, respectively in the fourth quarter of 2019).
Overall, gross margins of consumer firms increased by 2.12ppts to 23.9 percent in the first quarter of 2020, with companies gradually passing on the impact of PKR deprecation witnessed over the last two years and high costs due to inflation.
The increase in sales within the staples segment was largely broad based, where higher revenues were a mixture of (1) increase in prices to pass on higher costs due to currency devaluation and (2) higher volumetric sales compared to last year, Sunny Kumar said. Staples' sales growth was mainly led by NATF (up 28 percent YoY) and UPFL (up 17 percent YoY).
The gross margins of the staples business shrunk by 0.43ppts to 28 percent as the companies were unable to fully pass on the impact of higher costs. Notable decline in gross margins of staples was seen in PMPK (down 7.8ppts to 35 percent) and PAEL (4.7ppts to 22 percent).
Pharmaceuticals' sales growth clocked in at 7 percent YoY, where improvement in revenues was a combination of price increase and higher volumes. SEARL (up 13 percent YoY) and ABOT (up 12 percent YoY) led sales growth in this segment.
Similarly gross margins increased by 1.8ppts to 34.3 percent amid price increase (linked to annual CPI). ABOT (up 6.4ppts to 36 percent) and GSKCH (up 4.3ppts to 33 percent) reported notable increase in gross margins.
Discretionary firms reported significant decline in revenues of 32 percent YoY as purchasing power of consumers and sales took a major hit due to slowdown in overall economic activity and country wide lockdowns. The decline was in spite of price hikes as volumes witnessed a contraction of over 50 percent YoY.
The overall gross margins for this segment increased by 0.11ppts to 8.8 percent, led by INDU (up 0.41ppts) While margins of all others in this segment were down in the range of 0.02ppts to 6.59ppts.
Overall sales during the first quarter of 2020 recorded an improvement of 5 percent on QoQ, led by revenues of Consumer Discretionary (up 18 percent QoQ) amid increase in price hike and New Year phenomena as consumer wait for the new model.
Turnover of Consumer Staple was also up by 1.0 percent on QoQ, whereas sales of Pharmaceuticals sales were down by 8 percent QoQ.
The overall gross margins were down by 0.1ppts QoQ. Overall profitability was up by 2 percent QoQ led by Consumer Discretionary (up 67 percent QoQ) due to the above mentioned reasons. The profitability of two other segments, ie, Pharmaceuticals and Consumer Staples witnessed decline of 15 percent QoQ and 5 percent QoQ, respectively.
“We believe, due to country wide lockdown amid COVID-19 outbreak, the sales of overall consumer segment will be affected due to supply chain disruptions, wherein consumer discretionary firms are likely to take the hit most among others," Sunny Kumar added.