Philip Morris (Pakistan) Limited In 9MCY23

Philip Morris (Pakistan) Limited (PSX: PMPK), the nation's second-largest cigarette maker, recently released its financial results for the first nine months of CY23, showing a sharp drop in net earnings during that time. In 9MCY23, the tobacco company's earnings dropped from Rs2.4 billion in 9MCY22 to Rs660 million. Declining topline was the primary driver of the 72% year-over-year reduction in profitability, with growing costs providing further support.

The 9 percent year-over-year reduction in net turnover in 9MCY23 was mostly caused by a decline in the volume of cigarettes sold. The FED hike in February has had an impact on the volumes of the tobacco business in 9MCY23. According to the 2023 second quarter report, PMPK volumes decreased by 50% in 1HCY23 compared to the same period the previous year, and by 44% in the nine months. Volume growth was also impacted in 2022, when sales of cigarette sticks fell by 8% annually, according to PBS data.

Additionally, despite a 3% year-over-year increase in the cost of sales, the company's gross profit decreased by 22% in 9MCY23, or 61 percent of net turnover. This means that 9MCY23's "cost of sales" took up more than 6% of the top line. As a result, gross margins significantly decreased. Despite the support from other income, the operating margins decreased to half of what they were in 9MCY22 due to cost growth. The net margins decreased as a result, going from 15.87 percent in 9MCY22 to 4.83 percent in 9MCY23.

The controlled tobacco sector still faces its fundamental obstacle. Volumetric sales in the industry have been hurt by the cumulative excise hikes of nearly 200 percent in 2022–2023, which includes a 150 percent excise hike in February 2023. Simultaneously, these actions have accelerated the expansion of illegal tobacco and tobacco businesses that do not pay taxes.