The Bell about Food Producers – Elixir Securities Limited

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.

Leave a Reply

Your email address will not be published. Required fields are marked *