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Karachi: ENGRO Foods Analyst Briefing Notes 1QCY12: Top line growth leads to bottom line gains
Result Review 1QCY12: Top line growth leads to bottom line gains
EFOODS reported 1QY12 top line of PKR9.6bn, up 50% YoY, from PKR6.3bn in the same period last year.
According to Elixir Securities Limited, operating margin expanded to 9.8% from 5.9% in the period under review. PAT showed a massive rise of 3.1x to clock in at PKR486mn from PKR117mn.
The UHT segment contributed 95% to the top line and 133% to PAT. Ambient UHT value growth was 54% YoY with volumetric growth accounting for 39% of the increase and the rest being contributed by price increase.
Ice cream business accounted for 4.2% of the top line. The segment contributed negatively to bottom line to the tune of PKR135mn. Volumetric decline was witnessed to the tune of 19% on account of extension in winter.
The dairy farm was able to break even in 1QCY12 for the first time.
The Key takeaways of the briefing include:
UHT Segment: The diamond in the jewel
Management was optimistic with regards to the growth prospects of the company even in the face of an inflationary environment as they believe that packaged dairy segment is still under penetrated. Management also stated that EFOODS commands a market share of 44% (According to Nielsen) in the UHT segment. The company is going to roll out a revised strategy for its juices segment (Olfrute) so it can hone in on its USP’s. Management expects top line contribution of juices to go down further in the short term.
In the UHT segment, the company has not taken any price increase even though retail milk prices have increased by 3% in 1QCY12. They want to build sales momentum and plan to continue this as long as this could be possible.
Ice cream segment: The future may not be that bleak
In the ice cream segment the company believes it has seen the worst of the power shortage. Management expects negative contribution for a few more quarters although they believe the segment is near critical mass to break even. Ice cream segment is also toying with the idea of using vegetable fat as a key raw material which will help in expanding margins.
Upcoming investment: Powder plant
The new powder plant is expected to come online by the end of 1QCY13 which could extend by another quarter or two. Management has also consolidated learning in the powder segment and believes that the company will be able to leverage itself through this learning.
Future of Juices
Management believes it is not shying away from the juices segment and it sits in with the long term strategic product mix of the company.
Progress on Al Safa foods
Management believes Al Safa foods consolidation in EFOODS is right on track. Al Safa has a sales target of USD15mn for this year, up 2x from its sales of USD5mn in 2011. Market for halal foods is quite significant in North America unlike Europe with small number of big players.
| Engro Foods | |||
| PKR million | 1QCY12 | 1QCY11 | YoY |
| Net Sales | 9,666 | 6,363 | 51.9% |
| Cost of Sales | 7,410 | 4,985 | 48.7% |
| Gross Profit | 2,256 | 1,378 | 63.8% |
| Gross Margin | 23.3% | 21.7% | 7.8% |
| Distribution and Marketing expenses | 1,070 | 821 | 30.4% |
| Administrative Expenses | 230 | 155 | 48.5% |
| Other operating expenses | 73 | 45 | 60.5% |
| Other operating income | 65 | 19 | 239.8% |
| Operating Profit | 948 | 376 | 152.2% |
| Finance Costs | 209 | 195 | 7.1% |
| Profit before taxation | 739 | 180 | 309.3% |
| Taxation | 253 | 63 | 300.4% |
| PAT | 486 | 117 | 314.1% |
| EPS (PKR) | 0.65 | 0.16 | 314.1% |
| Source: Elixir Research, Company Accounts | |||
FTA with India and its impact on EFOODS
Management expects FTA with India to be positive for the company since this will not only increase competition but also increase market size. Besides trade, it will help in generating more economies of scale for bigger foods companies.