Nutritious potential

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Take the case of National Foods, which claims to be the number one foods company in Pakistan. In their half-yearly results revealed yesterday, the companys net margins more than doubled during 1HFY11, vis-à-vis the same period last year.
Behind the improved growth in the bottom line was the outstanding year-on-year sales growth of nearly 25 percent in 1HFY11.
That the company passes on inflationary price increases in commodity prices to customers may explain part of the top line growth, but the exceptional growth in sales is plausibly also volume-based, thus helping the local food business grow organically.
And National Foods does see further scope for growth in the foods arena. They launched basmati rice and instant powder drink over a year ago to enhance their product portfolio.
With export sales near 10 percent of the total sales, the company also has a sound footing in the international market, with a presence in North American, European, Middle Eastern countries to name a few.
The foods business in Pakistan is, indeed, a very lucrative market. When National Foods set up their "vision 2020" of achieving Rs50 billion worth of annual sales by 2020, they had banked on this tremendous potential in the country.
Changing trends and preferences amongst the populace is a key factor, as the acceptance of packaged goods has increased considerably. While greater media penetration and marketing has played a critical role in increasing awareness of processed and packaged food, there still remains a lot of scope.
For a population that likes to emulate Western consumption patterns, annual per capita consumption of around Rs9,000 on food is quite low, and food consumption is believed to grow by over 36 percent between 2009 and 2014, said Business Monitor International - an independent, London-based company focusing on industry and country research.
And the growth of stronger internal trade links through the creation of retail stores such as Makro, Metro, Chase-up, Naheeds, etc., outreach to the consumers has also blossomed.
But the food industry in the country depends heavily on the agriculture sector, and consequently has to bear the brunt of derived inefficiencies from there. National Foods claims inflationary pressures on agri commodities to be a grave challenge for the company in the fiscal year gone by, and with escalating commodity prices persisting in FY11, the picture is not likely to have improved.
Huge sections of the countrys agriculture industry are inefficiently managed. According to a study, theres potential for the countrys horticulture exports to surge to $1 billion in five years if its branded and promoted well with the help of the private sector.
But that could happen if the transport inefficiencies and disorganised market dynamics are amended to some extent.
Otherwise, resultant price volatility and inefficient market mechanisms will keep the food industry from realising its true potential.

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(Rs in million)       1HFY11    1HFY10       chg

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Net Sales             2,828     2,265        25%

Cost of sales         1,985     1,985        26%

Gross profit            843       691        22%

Gross margin             30%       24%       22%

Distribution cost       508       516        -2%

Admin expenses           80        78         3%

PAT                     118        42       181%

EPS (Rs)               2.86      1.01

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Source: KSE notice