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Karachi, January 27, 2014 (PPI-OT): Engro Foods CY13 review | Picture still rosy for CY14
Engro foods (EFOODS) announced financial results for CY13.
According to Standard Capital, the company booked mere net profit of Rs 210.9mn (EPS Re 0.28) but had one time entry of Rs 881mn not taken the real EPS could have been Rs 2.50/sh – against Rs 2.6bn (EPS Rs 3.41) in CY12. One time non-recurring expense of Rs 881mn is due to cash losses of Engro Foods Netherland and a charge related to sales tax for the period when FBR temporary removed zero rating status of dairy products that has impaired the earnings. One time investment in EFOODS-Netherlands is Rs673mn.
Financial highlights
EFOODS reported net sales of Rs 37.9bn for CY13, 6% lower than last year’s sales of Rs 40.2bn mainly due to decline in volumetric sales. With increasing COGS given mismanagement, GP margin declined to21.6% in CY13 against 25.7% in last year. Due to 8% higher operating expenses and 15% lower other income in CY13 the operating profit decreased by massive 55% to Rs 2.1bn in CY13 against Rs 4.8bn in same period last year. By excluding onetime expense of Rs 881mn EFOODS’ net profit declined by 58% in CY13 as against CY12
Year of challenges
Reporting year 2013 was challenging for EFOODS and surrounded with many operational challenges from supply side to distribution network, causing revenue to decline by 6% in CY13. As a result UHT market share was 49% in November 2013 compared to 51% in December 2012. Nestle been one of the beneficiary in decrease in market share.
Things seems to be settled – Mabrook in Karachi
Appropriate actions are needed to be taken to manage the distributions and suppliers side – as problems persisted during second half of the year. The top level management was changed to keep company growth constant. And result was observed in the result of 4Q, where dairy and beverage segment grown by 15% against Q3. It is expected that with new strategic planning and decisions company will come out of tides and continue to grow in its core products and market share to increase in CY14.
Mabrook outlets are now in full swing wherein Standard Capital sees outlets BTL activities are taking place at places such as Gulistan-e-Jauhar and Sharfabad localities in Karachi where there is a culture of milk shops owned by desi dweller.
Valuation: | HOLD
EFOODS may recoup distribution woes and take back lost market share in milk. This alone could enhance real EPS of EFOODS for CY14 to Rs4 – Rs5/sh. EFOODS is a growing entity wherein there are many developments taking place. HOLD