The newest entrant to the edible oil sector has posted strong results for the few months it has been in business. Unity Foods commenced operations in February this year and managed to earn a top-line of Rs2.8 billion in 5 months.
For the initial two months of operations, Unity posted gross margin of 16 percent and net profit of 13 percent. Based on expectations of higher refined oil sales in coming quarters, the company expected margins to rise but FY18’s figure were significantly lower. Having said this, it must be borne in mind that expenses have been spread over less than half a year of sales.
Previous quarter’s report indicates that the 67 percent of Unity’s sales were through exports. The company sells different oil states and products as well as meal which are sold abroad. Since almost all of Pakistan’s edible oil and oil seeds are through imports, currency devaluation results in the bottom-line taking a hit. In Unity Food’s cases however, exports provide a natural cover against devaluation.
The edible oil and oil seeds sector is characterized with high turnover and low margins. Being able to post margins at par with sector averages without the benefits of economies of scale kick in indicates superior performance. Other than operational performance, nearly 30 percent of Unity’s bottom-line consists of other income which includes exchange gain and sales of by-products.
A factor that may have supported its sales is the US and China trade war. China is a huge consumer of soybean from the US but has slapped tariffs on imports. Since a large portion of its sales are based on international orders of meals, it is possible that Unity Food has exploited this opportunity.
Going forward, it has announced the launch of its retail edible oil brand by the name of “Dastak” for which it has acquired an existing refinery possessing a capacity of 500,000 tons per annum. The retail edible oil sector is dominated by Dalda that has over 50 percent share and the rest of the market is divided among various other players. To successfully compete, Unity Foods will require a large marketing budget and aggressive advertising which may drag down its bottom-line.
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