Engro Foods shines

The first quarterly results for Engro Foods this year showed a remarkable growth in the companys revenues and margins, surpassing analysts expectations.
An over 50 percent year-on-year increase was recorded in the top-line, contributed both by increases in volumes and prices of Engro Foods diverse product portfolio. Much of this increase was led by the liquid segment, UHT in particular, while the ice cream segment saw a dip in volumetric sales owing to a prolonged winter season this quarter.
The improvement in revenues was reflected in the companys gross margins, which went up slightly by 1.7 percentage points to over 23 percent.
The companys distribution and marketing expenses to sales ratio showed a decrease from 13 percent in 1QCY11 to 11 percent in 1QCY12. This could be indicative of the company achieving economies of scale in terms of marketing expenses and distribution networks, as many of its products are advancing beyond the introductory stage when greater marketing expenditure may be required.
The efficiency in distribution and marketing expenses also caused a greater improvement in operating margins relative to the improvement in gross margins. With an operating profit of Rs950 million, the operating margins went up about 4 percentage points in 1QCY12 to 9.8 percent, relative to the same period last year.
All in all, Engro Foods bottomline was about four times what it was in 1QCY11, reflecting a phenomenal growth of over 300 percent to roughly Rs0.5 billion.
Going forward, the growth company plans to invest Rs8.7 billion in 2012 for expansion purposes. Out of this, two billion rupees will be invested in the powdered milk business, while the remainder will be invested in capacity expansion and cold chain infrastructure development.
In addition, with the summer season having begun in the country, ice-cream sales will likely experience an up tick, further brightening prospects for the consumer goods company. In a corporate briefing held at the beginning of March, the companys management was hopeful that the ice-cream sub-category will turn into the greens by 2013.
Investors responded positively to the companys result announcement with Engro Foods share price rising by about five percent yesterday to Rs47.08. Overall, with a product diversification strategy and a positive outlook ahead, prospects seem bright for the company.