Economic slowdown cannot be doubted. The LSM index is down to Nov-15 levels, and inflation is in double digits after long. The documentation efforts have dented the sales while cost push factors hurt the bottom-line of FMCG companies in the food business. Big companies are taking cost cutting measures- by consolidating the value chains and firing employees. Yet, the merger and acquisition activities are picking up. Nothing can beat the promising youth bulge, that is to be fed, and junk food intake is increasing in Pakistan.
Rumor has it that Shan Foods is selling its majority stake, and Unilever may well be a potential buyer. The news of spice making company selling stakes has spiced things up at PSX- even though the company is not listed. The valuation is said to be around $250 million and the deal could be around $150 million for a majority 60 percent stake.
The company is up for sale and it has approached various buyers, including Unilever, as per news report. The buzz is that the deal is at its final stage with Unilever and the valuation is at 1.5 times the sales. This is implying that the company’s annual sales hover around Rs24-25 billion. The valuation is consistent with National Foods with last year annual sales last year at Rs16.6 billion and its market capitalization is Rs22.7 billion, at a price to sales multiple of 1.37.
Apparently, Shan Foods is not the only company up for sale. A few other emerging brands are up for sale and both local and foreign investors, including Pepsi Co have shown interest in buying. The brands are in various businesses including Fauji Meat. And one of the deals is said to be close to 2 times the sale. Fauji Group was looking to sell its whole food operation as managing brand and running FMCG business is different from traditional fertilizer or transportation businesses. However, negotiations with the buyer could not culminate, but its meat business is probably going to be sold soon. That could be the reason for bullish trend in FFBL lately.
The processed food business is thriving in Pakistan. The products are cheap and the young population is huge. One of the emerging markets is of potato and corn based snacks where Pepsi Co is dominating the market. According to Euro Money data, Pepsi Co share in the local market of potato was 59.4 percent in 2018.
Companies like Pepsi Co go a long way in creating the value chain of the industry as in case of potato chips, the company helped in making complete chain from farm to end consumer. Such revolutions are seen by Nestle and others dairy business, and the deal of Engro Foods and Friesland Campina at $447 million is not that old.
