Islamabad: Pakistan Tobacco Company Ltd. (PAKT) has reported a significant rise in illicit trade, which has started to overshadow its positive financial growth. During an analyst briefing held yesterday, the company outlined its 1HCY25 financial results and laid out concerns regarding the burgeoning illegal cigarette market.
PAKT's net turnover for the first half of 2025 rose by 19% year-on-year, reaching PkR69.4 billion compared to PkR58.2 billion in the same period last year. This boost was largely driven by a remarkable increase in export turnover, which surged 4.5 times to PkR10.2 billion. However, domestic cigarette volumes saw a decline of 9% due to the persistent price gap between taxed and untaxed brands.
Earnings for the first half of the year increased by 30% to PkR14.3 billion, up from PkR11.0 billion the previous year. This improvement was attributed to enhanced operational efficiencies and resource management, which helped expand the gross margin to 47.3% from the previous 40.6%.
Despite these strong financial indicators, the company highlighted the negative impact of the illicit market, which now commands a 58% share following a Federal Excise Duty hike in 2023. This has become a major challenge for PAKT, affecting the legitimate industry's competitiveness.
PAKT maintains a 35% market share in Pakistan's tobacco sector, with production and sales of approximately 13 billion sticks in the first half of 2025. The company also noted that its 'Velo' segment, contributing 4-5% of revenue, is anticipated to break even this year, with the company's factory serving as a regional hub exporting to Japan, the GCC, and Europe.
On the agricultural front, management assured that most tobacco crops in Khyber Pakhtunkhwa were harvested and stored before the recent floods, with ongoing assessments for the Punjab region.
Additionally, PAKT's effective tax rate increased due to disallowed expenses by authorities, further compounding the challenges posed by the thriving illicit market. Despite these hurdles, the company remains optimistic about maintaining its gross margin stability in the second half of 2025.