LAHORE: Pakistan consumer companies’ (discretionary, staples and pharmaceuticals) profitability increased by 98% YoY during 1Q2021 as compared 80 percent YoY in 4Q2020, according to Sunny Kumar, research analyst at Topline Securities limited. Category wise, consumer discretionary firms posted significant 168% YoY improvement in profitability during 1Q2021, followed by 95% YoY increase in consumer staples and 46% YoY rise in pharmaceuticals earnings. Better economic activity, low base affect amid country-wide lockdown starting during the last week of Mar-2020 and overall increases in prices resulted in increase in overall revenues by 37% YoY during 1Q2021. Overall gross margins of consumer firms declined by 0.7ppts YoY to 22.8% in 1Q2021 from 23.8% in 1Q2020; led by consumer discretionary firms (INDU, THALL and PAEL) on account of increase in raw material and logistics costs. Discretionary: These firms took the lead, where revenues increased by 69% YoY in 1Q2021 primary due to increase in volumetric sales of PAEL (appliances and power division) and car manufacturers by 42% YoY and 76% YoY, respectively. The gross margins of this segment were down by 1.1ppts YoY to 35.9%, led by INDU (-2.9ppts YoY), THALL (-0.7ppts YoY) and PAEL (-0.1ppts YoY), Margins of PSMC increased by 2.9ppts YoY to 6.1%. Staples: Sales of staples increased by 24% YoY in 1Q2021 where all companies reported increase except for BATA (-9% YoY) due to lower volumetric sales amid closure of schools. Revenues of NESTLE (largest in our sample size with a weight of 23%) increased by 8% YoY during the quarter. Staples’ sales growth was mainly led by UNITY (+108% YoY) due to addition of new product lines along with capacity expansion. Gross margins of consumer staple companies were up by 1.7ppts YoY to 29.6% amid operational efficiencies (increase in volumetric sales) and a stable PKR. Notable increase in gross margins of staples was seen in PMPK (+13.4ppts YoY to 48%) and RMPL (+7.9ppts YoY to 31%). Pharmaceuticals: The sales for this segment increased by 17% YoY amid combination of (1) increase in prices which are linked with CPI and (2) increase in volumetric sales. SEARL (+38% YoY) and ABOT (+31% YoY) led sales increase. Gross margins of Pharmaceuticals companies were up by 2.0ppts YoY to 36% amidst a stable currency. GLAXO (+3.9ppts YoY to 24%) and ABOT (+3.1ppts YoY to 38.3%) reported notable increase in gross margins. Overall profitability of consumer companies was up by 13% QoQ in 1Q2021; led by consumer discretionary firms (+18% QoQ) followed by consumer staple firms (+15% QoQ). Pharmaceuticals’ profits were down by 4% QoQ. Highest increase in profitability within discretionary segment was witnessed in PSMC and PAEL which turned in profits of Rs778mn and Rs283mn in 1Q2021 vs. losses of Rs941mn and Rs532 in 1Q2020, respectively. Overall sales during 1Q2021 increased by 11% QoQ mainly due to increase in revenues of Consumer Discretionary (+23% QoQ) amid higher volumetric sales driven by pent-up demand and low interest rates. Turnover of Consumer Staples firms was also up by 7% QoQ, while revenues of Pharmaceuticals were down by 3% QoQ. The overall gross margins were largely remained similar QoQ at 22.5%.