Noon Pakistan Limited (NOPK)

Noon Group of companies is Pakistan's one of the oldest business groups. The group was established by the prominent Noon family of Punjab. Noon Pakistan Limited - was incorporated in 1966 as a public company. Currently, the family owns a diversified portfolio of companies under its belt. This group has its presence from cement industry to textile and from sugar to dairy product.
Nurpur is the food arm of Noon Group of Companies. Nurpur is principally engaged in processing and sale of various dairy products and juices with the brand name of Nurpur. Nurpur claims that it is the first company in the private sector of Pakistan to operate a Spray Dryer for the process of milk powder. Currently, Nurpur is producing various products namely Butter, Cheese, UHT Milk, HCLF, Pasteurised Milk, Flavoured Milk, Juices, Water, Desi Ghee, Honey, and Jam.
PRIOR FINANCIAL PERFORMANCE:Nurpur's fortunes are in decline after witnessing a progressive increase in FY12. The main revenue stream for the company comes from sales of its dairy products, and that's where the problem is. The milk company that used to process 43 million litters of milk in FY 10 has handled only 18 million litters of milk in FY15. Unlike Engro and Nestle, the giants in the industry which have increased their production over the course of years considerably, Nurpur was unable to utilise its installed capacity. The Company has witnessed the decline in sales since FY13, and that pattern continues. In FY14 ending June 2014, the company lost 25 percent in sales over FY13 similarly in FY15 the decline was 15 percent. In terms of profitability, the company's earnings have been mostly negative, and the company posted loss close to Rs 350 million in FY15. It is the third consecutive loss for the business, and it proves that indeed, growth has been hard to come by for the company.
The financial year 2012 was particularly kind to the company, despite an increase of 10 percent in the price of fresh milk compared to FY11, the company was able to achieve highest ever production in multiple segments of its production during five-year period under discussion. The company gave credit to its on-going cost management and controlling initiatives that helped partially to offset the negative impact of escalating input costs. However, despite this, the company's net margins stayed flat. But, after 2012, it's all been downhill for Nurpur.
The company management gives three main reasons for their losses. First they blame it on the high cost of raw material that has hampered the company's progress; due to cut throat competition in the dairy segment and NOPK is unable to pass the cost to its consumer. Secondly, the company blames the economic and political situation of the country responsible for the lack of its sale. The third reason they have mentioned in the FY15 annual report is that they are having trouble to get enough financial support from their lenders.
The second reason that they have given is quite questionable. The economic and political situation of the country makes little to no sense because the FMCG sector even though have slowed down a bit, but it is still beating market expectations and the industry's numbers are impressive overall. However, Nurpur's first reason certainly makes sense and without a doubt it can be the main culprit why NOPK is in the red. It is hard for a company like Nurpur to compete with two giants like Engro and Nestle, and their advantage of the economy of scale have quickly pushed small players on a side. Lack of financial support from lenders has also played a significant role in the current situation of the company because it seems that NOPK is having trouble in buying raw material due to lending issues.
RECENT PERFORMANCE: Nurpur's struggle has continued in the new financial year started in July 2015. For the first three months ended September, the company's top- line fell by a whopping 31 percent year-on-year. Gross profit plummeted by a massive 101 percent. NOPK's bottom line tanked and showed a loss of Rs 73 million. The company was unable to utilise the benefits of declining core cost of powdered milk in international markets like other FMCG companies because of the competitive pressure it is facing from the major firms.
ENTRANCE OF FAUJI: Fauji Fertilizer Bin Qasim Limited (FFBL) after leaving a mark in fertilizer business is in the process of diversification. It seems quite natural for them to enter into FMCG sector. So, after establishing a meat processing plant for the export of Halal meat, they have set their eyes on growing dairy industry as well. For this particular reason, they showed interest in acquiring the major stakes in Nurpur Dairy.
In September 2015, Fauji Fertilizer Bin Qasim Limited (FFBL) together with Fauji Foundation (FF), have obtained controlling interest with 51 percent voting and 51 percent non-voting shares of the Noon Pakistan Limited. Without a doubt, this has been the best things happened to Nurpur in its recent history. The acquisition will be beneficial for the Company as well as for all stakeholders. The Company is now going for major expansions in its operations, which will hopefully reflect as better financial results during the next periods of the current year. It is certain that FFBL wants to take advantage of the production capacity of Nurpur's plant and the location of the plant in the city of Bhalwal, District Sargodha. Overall NOPK had been underperforming the market because of its recurring losses. However, following the acquisition by FFBL in September NOPK's stock has outperformed the market quite a lot and market seems excited about the company's future.

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Noon Pakistan Limited

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Rs (mn)             1QFY15   1QFY16      YoY

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Sales                  518      358     -31%

Cost of sales          458      359     -22%

Gross profit/(Loss)     60     -0.3    -101%

Distribution cost       30       26     -13%

Admin expense           24       24        ?

Other income             3      657      N/A

Other expense            1        0      N/A

Operating Profit/Loss    8      -50    -725%

Finance cost            14       19      36%

Loss before taxation    -6      -69      N/A

Taxation                 5        4     -20%

Loss after taxation    -11      -73     564%

Gross Margins           12%       0%       ?

Operating Margins        2%     -14%    Down

                                    1200 bps

Netprofit Margins       -2%     -20%       ?

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