Engro Foods going green

Engro Foods stood to its promise of delivering a much better result than the previous half year. The top-line showed a hearty growth proving that Engro Foods is here to stay and is fast nibbling at the market share of its closest competitors. The company invested heavily in infrastructure development over the last couple of years, putting pressure on its finance costs which are expected to stay on the higher side in the coming years as payments become due. The growth trajectory of Engro Foods has been quite captive for consumers in terms of new products being added to the food basket every year while the relatively older brands continued to grow. This year the company added Olpers Lite to its portfolio taking advantage of EFLs CAGR of 10 percent in the last four years and the sanguine expectations of 11 percent in the years to come. The hike in sales can be largely attributed to an increase in the price as well as on the backdrop of growth in the overall demand for processed food and increasing share of EFL in the dairy and juices and ice cream business, in particular which rose to 39 percent and 17 percent respectively. Cost of sales for the firm rose impartially in the second quarter and first half of the current year due to increase in milk and Hydrogenated Palm Oil (HPO) prices; both of which are basic constituents of EFLs products. Proportionate increase in the firms top-line netted off any change in the gross margin for the second quarter as well as half year. Distribution and marketing cost as percentage of sales fell by five percent to settle at 13 percent and is expected to fall further towards the industry average of 10-11 percent. Despite the heavy advertisement and strong brand resonance for EFLs products, the much-hyped IPO of the company was undersubscribed by 30 million shares. However, according to Farid Alam, CEO AKD Securities, EFL is a stock having growth, volume and value as inherent factors and is a must-have for any investor. After strengthening investor confidence via companys fundamentals, all eyes are on the management to give a go-ahead for the trading to commence.

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Engro Foods
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Rs (mn)          1HCY11  1HCY10   chg  2QCY11  2QCY10    chg
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Net Sales       13,444  9,529     41%  7,081    4,788    48%
Cost of sales   10,622  7,527     41%  5,637    3,828    47%
Gross profit     2,822  2,002     41%  1,444      960    50%
Gross margin        21%    21%            20%      20%
Other income        36     14    157%     16        3   433%
Finance cost       491    307     60%    295      169    75%
PAT                216   (177)     NA     99     (166)    NA
EPS (Rs)           0.3  (0.33)          0.14    (0.31)
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Source: KSE notice