Engro Foods Limited (PSX:EFOODS) has emerged to take a leading position among the food companies in the country. The firm has seen exponential growth over its decade long life. However, its fianncial performance in CY16 has dwindled somewhat as competition in the industry intensifies.
EFOODS is engaged in the manufacturing, processing and marketing of dairy products, ice cream and frozen desserts with brands like Olpers, Tarang, Dairy Omung and Omore quickly becoming household names. It also has a dairy farm, which serves as the raw material for its dairy segment.
Last year (i.e. CY15), EFOODSs growth in volumes and earnings remained buoyant amid rising compeititon. The firm focused on consolidating its market leadership position within the UHT category. As per the companys 2015 Annual Report, EFOODS focused on strengthening its core competencies vis a vis product quality, communication differentiation and distribution expansion, which contributed towards robust topline and bottomline growth.
However, in 2016 (CY16), EFOODS has seen a drop in net sales and hence the earnings. 2016 has seen some volume and gross profit tightening as volumetric growth remained under pressure in the tea whitener segment due to changes in tax regime and increased competition. Budget 2016-17 included a change in the GST regime from zero rating to exempt that has apparently resulted in an increase in the cost.
Besides the squeeze in the tea whitener category, the dairy farm segment also contributed to lower bottomline in 2016 as international market prices of animals continued to fall. On the other hand, volumes of Olpers, Omung and the ice-cream business have been supporting the volumetric growth.
Unlike a constrained profitability picture, the firm announced hefty dividends for 2016 Rs10 per share including a one-time special cash dividend of Rs9 per share. Market believes that this is a one-off payout at the acquisition of EFOODS by FrieslandCampina.
2016 was a year of metamorphosis at EFOODS, marking the completion of the Dutch acquisition deal. The acquisition of EFOODs, countrys second largest milk producer in the formal sector after Nestle will help the firm in growing and diversifying its product portfolio; right now, the local milk producer is getting 90 percent of the revenue from only three products: Olpers, Omung, and its tea whitener Tarang which is in duress.
It is a fact that the demand for dairy products is rising in the country with expanding middle class, urbanization and increasing competition in the milk industry with formal UHT milk market, pasteurized market segment and the big informal segment fighting for market share. And EFOODs intends to accelerate volumetric growth and consolidate its market leadership positions via additional brand investment a key to counter intensified competition and increased commodity prices as well as the effects of changes in GST regime.
Comments
Comments are closed.