EUR 50.00 For Business Accounts Only

Pakistan Consumers: Sectors’ profit down 7% YoY in 1Q2020; Staples and Pharmaceuticals sales up 7-8%; Discretionary sales down 32% YoY

• Pakistan consumer companies’ (Staples, Pharmaceuticals and Discretionary) profitability declined by 7% YoY in 1Q2020 (vs. -12% YoY in 4Q2019).
• Category wise, Pharmaceuticals witnessed significant increase of 37% YoY in profits, followed by Consumer Staples which remained largely stagnant (+1% YoY), while the profitability of Consumer Discretionary (mainly autos) fell by 39% YoY.
• Overall slowdown in economic activity and country-wide lockdown starting during the last week of Mar-2020 in the wake of COVID-19, resulted in lower consumers’ purchasing power.
• Sales of Consumer Discretionary as a result has declined significantly by 32% YoY (vs. -38% in 4Q2019). However, the turnover for the other two segments, i.e. Staples and Pharmaceuticals, witnessed an uptick of 8% YoY and 7% YoY, respectively (+7% YoY and +12% YoY, respectively in 4Q2019).
• Overall, gross margins of consumer firms increased by 2.12ppts to 23.9% in 1Q2020, 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. Staples’ sales growth (in our sample size) was mainly led by NATF (+28% YoY) and UPFL (+17% YoY).
• The gross margins of the staples business shrunk by 0.43ppts to 28% 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 (-7.8ppts to 35%) and PAEL (4.7ppts to 22%). 
• Pharmaceuticals’ sales growth clocked in at 7% YoY, where improvement in revenues was a combination of price increase and higher volumes. SEARL (+13% YoY) and ABOT (+12% YoY) led sales growth in this segment.
• Similarly gross margins increased by 1.8%ppts to 34.3% amid price increase (linked to annual CPI). ABOT (+6.4ppts to 36%), and GSKCH (+4.3ppts to 33%) reported notable increase in gross margins.
• Discretionary firms reported significant decline in revenues of 32% 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% YoY.
• The overall gross margins for this segment increased by 0.11ppts to 8.8%, led by INDU (+0.41ppts) While margins of all others in this segment were down in the range of 0.02ppts to 6.59ppts.
• Overall sales during 1Q2020 recorded an improvement of 5% QoQ, led by revenues of Consumer Discretionary (+18% 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% QoQ, whereas sales of Pharmaceuticals sales were down by 8% QoQ.
• The overall gross margins were down by 0.1ppts QoQ.
• Overall profitability was up by 2% QoQ led by Consumer Discretionary (+67% QoQ) due to the above mentioned reasons. The profitability of two other segments, i.e. Pharmaceuticals and Consumer Staples witnessed declines of 15% QoQ and 5% 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.