Toyota Motor Corp. and Unilever affiliates in Pakistan said the worst floods in the nation’s history may sap growth and force production cuts as consumers struggle to cope with the destruction of crops and houses.
“The economy is fragile,” Parvez Ghias, chief executive officer of Toyota-backed Indus Motor Co., Pakistan’s largest automaker by market value, said by phone yesterday from Karachi. “The prices of food and essentials have gone up significantly.”
Floods in Pakistan following a month of monsoons have displaced about 20 million people, submerged 1,500 kilometers (930 miles) of roads, destroyed $1 billion of crops and killed 10 million head of livestock. The Karachi Stock Exchange 100 Index, the nation’s benchmark index, has tumbled 6.3 percent this month, the third-worst performance among 93 major global indexes tracked by Bloomberg.
“The overall impact of the floods is going to be very serious for the economy,” said Nasim Beg, who helps manage $200 million at Karachi-based Arif Habib Investments Ltd. “In the long term, something like cement might look alright, but in the immediate term, I think everything will be under stress.”
Milk supplies at Engro Foods, the nation’s largest producer of packaged milk, have fallen as much as 15 percent with floods disrupting operations at about 65 collection centers, said Chief Executive Officer Sarfraz A. Rehman. As much as 25 percent of cotton-growing areas may also have been affected nationwide, according to Nishat Mills Ltd., the country’s biggest textile exporter. Pakistan is the world’s fourth-biggest cotton producer.
“The damage is going to be significant,” said Muhammad Adil Ghani, plant operations head at Lahore-based Nishat Mills. “We have to reevaluate the forecast for the coming year.”
One of the group’s power plants, in Punjab province, northern Pakistan, was closed for at least five days because of floods, he said. The company’s four textile factories around Karachi, Faisalabad and Lahore haven’t been directly affected.
Nationwide car sales may fall as much as 25 percent this quarter because of the floods, said Indus Motor’s Ghias. The automaker, 38 percent owned by Toyota and an affiliate, may cut output in October because of the expected slowdown, he said. The company has enough orders to maintain its 200 cars-a-day production rate until then, he said.
Unilever Pakistan Ltd., a unit of the world’s second-biggest consumer-goods maker, may miss its full-year sales target by as much as 7 percent in the “worst case,” said CEO Ehsan Ali Malik.
Indus fell 0.5 percent to 253.11 rupees in Karachi trading today. Unilever Pakistan gained 1.2 percent to 3,970.59 rupees. This month, Indus has declined 7.3 percent, while Unilever Pakistan has fallen 0.5 percent.
The floods have killed as many as 1,600 people, largely in rural areas including in the northern province of Khyber Pakhtoonkhwa and the central province of Punjab. The country’s economic growth this year may miss a forecast of 4.5 percent by as much as 2.5 percentage points because of the disaster, Finance Secretary Salman Siddique said on Aug. 13.
Pakistan’s major cities and industrial areas, such as Karachi and Faisalabad, have escaped the flooding, which has limited damage at factories and may also curb the impact on earnings. Unilever’s local unit gets about 8 percent of revenue from the worst affected areas, CEO Malik said.
“So far there hasn’t been a major impact on sales,” he said. A reduction in costs may offset any decline in revenue, safeguarding profit, he said.
Mark Mobius, who oversees about $34 billion in developing-nation assets as executive chairman of Templeton Asset Management Ltd.’s emerging markets group, is also buying Pakistani shares in anticipation of a rebound from the floods. Local stocks’ valuations are “very, very attractive,” he said earlier this week.
Unilever Pakistan has maintained production through steps including re-routing shipments of goods, Malik said. Nestle Pakistan Ltd., a unit of the world’s biggest food company, has continued operations at its factories, which are concentrated in Sheikhupura, Kabirwala and Islamabad.
The full impact of the disaster on foodmakers will become clearer over the next week or so as they work through inventories of goods such as fruit pulp, used to make juices, said Syed Fakhar Ahmed, a spokesman for Nestle Pakistan.
Engro Foods’ milk tankers have been unable to reach areas of Sindh and Punjab provinces because of the floods, CEO Rehman said. Retail milk prices may eventually rise by as much as 4 rupees (5 cents) a liter, he said. In the short term, the effect on food prices has been mitigated by Ramadan, a month of fasting for Muslims that began on Aug. 11, he said.
“After the people return and transportation resumes, the supply chain will recover but not completely,” Rehman said.
The country will need to import 1 million head of livestock within five months to replenish stocks, according to the nation’s Meat Merchants Welfare Association. Livestock accounted for 11 percent of gross domestic product in the year ended June 30, according to the government’s economic survey.
“Agriculture is a very significant part of the economy,” Indus Motors’ Ghias said. “If we’re going to see negative growth there, other sectors will be impacted.”