National Foods - a very palatable performance

The local condiment and spice king, National Foods has been on a roll, of late. Backed by strong double-digit volumetric growth in a number of categories including recipe mixes, salt and desserts, the incremental growth in the firms top line for the period can largely be explained by heightened consumer acceptance of packaged food items.
Moreover with the "food manufacturing club" in the country currently dominated by big name producers of dairy-centric products, National has been the closest thing resembling a local multi-national that is consistently targeting the ethnic condiment market.
Not only does this mean that the firm has quite a few market leaders amongst its product portfolio, but it also translates into sustained demand for the firms wide range of specialty products for which very few competitors exist.
Strong export sales have also helped keep up Nationals growth momentum through less than stellar macroeconomic conditions at home. At the nine-month mark, total dispatches to markets in the Middle East, Europe and America account for 10 percent of the firms total revenues.
However the export sales for the third quarter show some lagging on account of the global recession in demand, but with the firm currently engaged in re-wiring their export business model, things should see some improvement in the coming quarters.
During the period under review, the firms margins continued their smooth journey upwards as fixed cost containment and waste reduction endeavours went full swing ahead. The firm also partook in a Consolidation phase recently in a bid to modernize most of its production processes.
However some slippages in operating margins were observed during the third quarter largely as a result of the strain put forth by administrative charges. Showing the largest increment during the period under review- climbing 78 percent year-on-year, the increase in these charges may be explained by hefty hikes in management compensations.
But tighter working capital management and improved cash flows which helped generate extra operating income for the firm during the quarter righted the balance, helping the small increment seen in the firms bottom line during a quarter that has traditionally been a lean period for the company.
Riding on the wave of unbridled consumer patronage at home, National Foods has raked in their highest ever profit before tax of Rs836 million last year and seems set on its path to build upon those figures this year.
With the firms performance weighing heavily on seasonality and demand soaring in Ramadan and the two Eids; the best is just around the corner for the company.

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NATIONAL FOODS LTD

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Rs (mn)                               3QFY12   3QFY13     chg

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Sales                                  1,606    1,777   10.6%

Cost of sales                          1,117    1,173    5.0%

Gross profit                             489      604   23.5%

Gross profit margin                      30%      34%       -

Distribution & other selling expense     215      284   32.1%

Administrative expenses                   46       82   78.3%

Operating Profits                        225      239    6.2%

Finance cost                              18       23   27.8%

NPAT                                     146      149    2.1%

EPS (Rs)                                3.51     3.59    2.3%

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Source: KSE Notice

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