National Foods Limited (PSX: NATF) has reported a sharp 29% decline in its profit after tax for the third quarter ended September 30, 2024. The company’s profit dropped to Rs589.1 million (EPS: Rs1.16) from Rs829.38 million (EPS: Rs2.42) in the same period last year (SPLY).
The significant reduction in profits was primarily driven by a substantial rise in finance costs, which increased by 61.7% to Rs753.76 million in Q3 2024, up from Rs466.21 million in Q3 2023. The surge in borrowing costs is a reflection of the prevailing high-interest rate environment.
Revenue Growth
Despite the decline in profits, National Foods’ top-line performance remained strong. The company’s revenue grew by 16.5% year-on-year to Rs23.25 billion in Q3 2024, compared to Rs19.95 billion in the corresponding period last year. This growth is attributed to increased sales volumes and price adjustments.
Gross Profit and Operating Performance
The cost of sales rose by 18.3%, slightly outpacing revenue growth, but the gross profit still increased by 11.8% to Rs6.05 billion in Q3 2024. The company’s gross margin, however, saw some contraction due to rising input costs.
On the operational side, selling and distribution expenses increased by 14.4% to Rs3.22 billion, and administrative expenses saw a more substantial rise of 27.8% to Rs1.25 billion, reflecting higher overhead and inflationary pressures.
Conversely, the company’s other operating expenses dropped significantly, falling 85% YoY to Rs3.62 million, which provided some relief to the overall cost structure.
Other Income and Finance Costs
NATF’s other income surged by a remarkable 220% YoY to Rs128.65 million from Rs40.19 million in Q3 2023. Despite this growth, the steep increase in finance costs overshadowed the positive impact, as finance expenses surged 61.7% YoY, primarily due to the increased cost of borrowing in a high-interest rate environment.
Taxation
The company paid higher taxes in Q3 2024, with a tax expense of Rs336.7 million, up 6.5% from Rs316.12 million in the same period last year.
Conclusion
National Foods Limited has been able to maintain revenue growth despite a challenging economic environment. However, rising finance costs and increased administrative expenses have significantly impacted the company’s profitability. Moving forward, managing cost pressures, particularly interest costs, will be crucial for NATF’s financial performance.
Key Financial Highlights (Q3 2024)
- Revenue: Rs23.25 billion (+16.5% YoY)
- Cost of Sales: Rs17.2 billion (+18.3% YoY)
- Gross Profit: Rs6.05 billion (+11.8% YoY)
- Selling and Distribution Expenses: Rs3.22 billion (+14.4% YoY)
- Administrative Expenses: Rs1.25 billion (+27.8% YoY)
- Finance Costs: Rs753.76 million (+61.7% YoY)
- Other Income: Rs128.65 million (+220% YoY)
- Profit After Tax: Rs589.1 million (-29% YoY)
- Earnings per Share (EPS): Rs1.16
