EFOODS looking up

From a sell call just three months ago by almost everyone, Engro Foods is now one of the top picks of most analysts. The turnaround has been impressive, it was building up slowly and truly materialized in the last quarter of CY14. Engro Foods (EFOODS) announced its full year CY14 financial results yesterday, which took most by surprise, as the after tax profits quadrupled year-on-year.
EFOODS recorded a revival of sorts in its dairy segment and a healthy double digit growth in revenue is indicative of that. The dairy segment had grown by 7 percent year-on-year by the end of 9MCY14, which is believed to have grown by a higher percentage in the 4QCY14. EFOODS market share in the segment stands well over 50 percent and growing.
Gross margins were the key issue for most of the previous year, but things have started to look up in the previous few months. Margins had remained weaker on account of higher milk prices, which the company was not able to fully pass on due to tough market conditions and also in an effort to grow volume. Gross margins have improved slightly in the 4QCY14 as our channel checks indicate, EFOODS operated more efficiently on the cost front.
The net profits for full year swelled mainly on account of tax benefits recorded by EFOODS. Minus the impact of taxation benefit, the full year pre-tax profits would have stayed flattish. But their real story lies in the fourth quarter performance, which suggests significant improvement in top line growth and better operating margins.

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Engro Foods

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Rs (mn)                    CY14     CY13      chg   4QCY14

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Net Sales                 43027    37891      14%    12356

Cost of sales             34926    29748      17%     9939

Gross profit               8101     8143      -1%     2417

Distribution &

 marketing expenses        4693     5063      -7%     1137

Administrative expenses    1282     1041      23%      425

Other income                305      324      -6%      102

Finance cost               1237      785      58%      298

PBT                         494      508      -3%      659

PAT                         889      211     321%      637

EPS (Rs)                   1.16     0.28              0.83

Gross profit margin         19%      21%               20%

Pretax profit margin       1.1%     1.3%              5.3%

Net profit margin          2.1%     0.6%              5.2%

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Source: KSE notice