Karachi, The food sector in Pakistan has exhibited robust growth in its top-line, based on the financial performance review for the September 2023 quarter. Analysis of eight leading companies in the sector shows a 30% year-over-year and 5% quarter-over-quarter growth. However, the sector faced a decline in margins due to decreased volumes and only partial passing on of inflationary pressures, resulting in no significant growth in profits.
According to JS Research, dated November 14, 2023, the food sector's gross margins dipped to 24% in the recent quarter, a decline from the 27% high marked in the March 2023 quarter. Over the last 15 quarters, the sector's average gross margin stood at 25%. This decline in gross margins also affected the operating and net margins, which fell to 12% and 7%, respectively.
Despite the recent dip in the bottom-line, the report emphasizes that the impact of macroeconomic headwinds has been exaggerated in the market. This is evident as benchmark companies in the sector underperformed the KSE100 Index by 20%. The sector's valuation multiples, including price-to-sales (P/S), price-to-earnings (P/E), and price/earnings-to-growth (PEG), remain attractive at 1.2x, 14x, and 0.28x respectively, based on trailing four-quarters revenues and earnings. The report also notes that the softening of commodity prices and a revival in domestic demand for consumer products are potential positive triggers for the sector in the upcoming quarters.
The food sector's resilience in the face of macroeconomic challenges reflects a cautiously optimistic outlook for its future financial performance.