Engro Foods Limited (PSX: EFOODS) announced its half yearly accounts on Friday, posting decline in its net turnover. Pakistan’s dairy sector is witnessing a boom in recent years and multiple new companies like Fauji Foods Limited (Formerly Noon Pakistan Limited), and Dalda Pakistan along with pasteurized-milk players have started to put pressure on EFOODS’ margins.
But the most prominent is the growing competition in the tea whitener segment, where EFOODS commands market leadership. Market share of the tea whitener Tarang, which is the largest selling brand of Engro Foods, is finding it difficult to compete for the shelf space from new entrants like CupShup by Dalda and Dostea by Fauji Foods.
Engro Corporation has recently signed a deal with Dutch base Friesland Campina to sell its shares in EFOODS at a discount of about 26 percent. This could enable EFOODS to introduce new value-added products, primarily infant nutrition segment and high margin other milk products.
Gross margins posted a growth of 100 bps, on account of the downtrend in imported Skimmed Milk Powder price which was down 25 percent year-on-year during the period. Also, EFOODS increased the price of its flagship and second largest selling brand Olpers, during the second quarter.
The reduction in administrative and finance cost helped EFOODS report a 9 percent year-on-year growth in profit before tax. However, according to market sources, due to one-time super tax in the second quarter, Engro Foods reported its half-yearly earnings of Rs1.96 billion (EPS: Rs 2.56) compared to Rs1.97 billion (EPS: Rs 2.58) in the same period last year. Previously this column has mentioned that the revenue shrinkage is becoming a persistent problem with EFOODS due to lack of diversification. Hopefully, EFOODS along with FrieslandCampina will make the EFOODS a more diversified company.
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ENGRO FOODS LIMITED
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Rs (mn) 1HCY15 1HCY16 YoY 2QCY15 2QCY16 YoY
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Net sales 24,742 23,331 -6% 12,253 11,588 -5%
Cost of sales 18,366 16,934 -8% 9,224 8,495 -8%
Gross Profit 6,376 6,397 0% 3,028 3,093 2%
Distribution and marketing expenses 2,443 2,561 5% 1,280 1,168 -9%
Administrative expenses 583 423 -27% 257 232 -10%
Other operating expenses 211 273 30% 86 153 78%
Other income 134 56 -58% 41 0.335 -99%
Operating profit 3,273 3,197 -2% 1446 1540 7%
Finance costs 539 214 -60% 272 111 -59%
Profit before taxation 2,734 2,983 9% 1174 1429 22%
Taxation 757 1,022 35% 256 576 125%
Profit after tax 1,977 1,961 -1% 909 853 -6%
EPS (RS) 2.58 2.56 - 1.19 1.11 -
Gross profit margin 26% 27% UP 100 bps 25% 27% Up 200 bps
Operating profit margin 13% 14% UP 100 bps 12% 13% Up 100 bps
Net profit margin 8% 8% - 7% 7% -
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Source: Notice to PSX
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