KARACHI: A third of Pakistan may be under water, but blue-chip companies continue to make hay as the sun shines brighter than ever on the country’s corporate sector.
Net profits of major listed companies increased by 22% for 2021-2022 to over Rs 1 trillion on an annual basis.
Talk to Dawn On Saturday, Topline Securities CEO Mohammed Sohail said corporate sector profit growth had slowed from the 55% recorded in 2020-21 solely because of the super tax, which was imposed retrospectively in the last federal budget.
“The number that is truly indicative of business performance in 2021-22 is pre-tax profit of Rs1.7tr, which is up 42% from a year earlier,” said Mr Sohail whose research house has compiled and published aggregate earnings data for 81 of the top 100 listed companies representing 93% of the benchmark’s capitalization.
“Some people say such strong corporate earnings growth is normal in a high-inflation economy. But the data shows net dollar earnings also rose 10% to $5.6 billion,” he said. The business sector’s pre-tax dollar income rose 28% to $9.9 billion in 2021-22, he said.
The government charges companies in 15 sectors a super tax of 10% if their revenue exceeds Rs 300 million 2021-22 on a retrospective basis. In addition, a super tax in increments of 1pc to 4pc has also been imposed on enterprises in sectors other than the 15 specified sectors.
“I agree with the government’s decision to impose the super tax even though it has slowed the rate of increase in corporate profits. Big business has done well despite the super tax, inflation and devaluation,” Sohail said.
He also favored the idea of progressive taxation on the corporate sector, which currently pays income tax at a flat rate with the exception of banks. “People who earn more pay more taxes. The same principle should be applied to the corporate sector,” he said.
Topline Securities’ research note showed that the increase in profitability was largely led by oil and gas marketing companies. Their revenues increased by 192% year-on-year, followed by oil and gas exploration (30%) and refinery (639%) in absolute terms.
Even though corporate earnings are increasing, there are concerns about the quality of those earnings: a significant portion of them are not cash-based due to circular debt and the build-up of claims for companies in the energy value chain.
The annual profits of textile, banking and chemical companies increased by 74%, 3% and 17% respectively, according to the research report.
On the other hand, the fertilizer and energy sectors reported an annual decline of 9% each in their profitability for 2021-22.
Corporate sector representative companies announced cash dividends amounting to 392 billion rupees in 2021-22, down 3% from a year ago. This translates into a dividend payout ratio of 39% compared to 49% the previous year.
Posted in Dawn, September 25, 2022