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Dawood Hercules Corporation reported a 23.4% decline in the earnings per share (EPS) for the nine months ending September 30, 2024, primarily due to a decrease in the dividend income, reports WealthPK.

This decline has sparked concerns among investors and market analysts, hinting at potential challenges ahead for the company. According to the financial report on the Pakistan Stock Exchange (PSX), the EPS declined to Rs12.70 from Rs16.64, while the consolidated EPS from continuing operations rose to Rs12.12. The earnings from discontinued operations fell to Rs1.09. Despite a 12% revenue increase, the net profit dropped to Rs24.33 billion from Rs43.1 billion.

The decline in EPS is primarily driven by a significant drop in the dividend income, which is a result of lower profits from key investments. Notably, the company's return on investments fell from Rs11.87 billion to Rs8.45 billion year-on-year, reflecting the struggles within its portfolio companies. Furthermore, Engro Corporation, one of Dawood Hercules' major investments, faced profitability challenges that affected its dividend payouts.

The company's fertilizer sector has been especially affected by the adverse weather conditions and a wheat crisis, which have together reduced farmer earnings and weakened the demand for fertilizers. The decline in EPS has sparked varied responses among investors and analysts. Some consider it a short-term setback, noting positive national economic trends such as decreasing inflation and rising foreign exchange reserves.

However, others worry about the company's capacity to overcome these hurdles without diminishing the shareholder value. Hence, analysts are keeping a close eye on how Dawood Hercules will address these financial challenges, particularly in managing its investments in Engro Corporation and other sectors currently under pressure. Despite the difficulties, the global economy showed steady progress last quarter, with lower energy prices and interest rates boosting activity, particularly in the emerging markets.

In Pakistan, the economic indicators improved as inflation and the policy rate fell, and foreign exchange reserves hit a 30-month high of USD10.7 billion, aided by robust remittances, exports, and a new IMF package. Therefore, Dawood Hercules is set to prioritize boosting operational efficiency, exploring new revenue streams, and adjusting its investment strategies amid current market conditions.

Despite the decline in EPS, the company views this as an opportunity to reassess its strategies and explore new growth avenues. Maintaining shareholder confidence remains a top priority, as it works to stabilize earnings and adapt to the market changes in the future.

Credit: INP-WealthPk