Engro Corporation, Pakistan's leading conglomerate, presented Engro Foods (a 100% owned subsidiary), for listing on the local bourse via an offer for sale, recently. However, due to lack of investor interest, the issue was met with a lukewarm response, as the IPO was undersubscribed by 5%. The issue was offered at a price of PKR 25, with and the issue size was PKR 675mn for public subscription, whilst PKR 1,200mn was raised via private placement to local and foreign institutions.
Major subscribers include NBP along with a decent foreign interest. Engro Corp now retains 89.97% holding in Engro Foods (EFOODS). EFOODS share price took an initial correction post listing, where the scrip hit a low of PKR 21.80 per share on Aug24'11. Since then, however, the scrip's price has shown 15% recovery, relative to the index return of 6% over the same period, aided by its strong 1H CY11 earnings announcement. Average daily volumes of EFOODs have been 0.12mn shares since its listing.
About the company
Engro Foods was formed as a wholly owned subsidiary of Engro Corp in 2005, with a vision to become a fast expanding mega foods company. It has been aggressively expanding its product portfolio, which now boasts not only a leading position in the UHT milk segment, but also cream, flavoured milk, tea whitening powder, ice creams and fruit juices. The Company also owns and operates a dairy farm, and has recently acquired a food company in North America.
Sales and Profits - 5yr CAGR of 28% and 88% on the cards
Engro Foods posted sales CAGR of 93% during CY06-CY10, however, its bottomline continued to remain under pressure due to continuous expansion and heavy brand expenditure. The company posted its first year of profit in CY10 with bottomline coming in at PKR 177mn (EPS: PKR 0.24). Going forward, growth in the Dairy business, value added products such as juices and powdered milk being added to the portfolio, and a fixed IRR of 18% on the equity investment for the rice processing plant, are expected to translate into a forward 5yr CAGR of 28% and 88% in sales and net profit, respectively.
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