EFOODS: bottom line slipping away

Many analysts still maintain Sell on the scrip for Engro Foods (KSE: EFOODS), which has had a difficult year so far. EFOODS latest financials show corrosion in profit margins for the nine months ended September 30, 2014.
The corporations sales proceeds for the period increased by paltry 9 percent year-on-year, whereas the bottomline contracted by a substantial 80 percent.
As Nestle raised its UHT milk prices to Rs110 per liter, EFOODS didn follow suit for its products Olpers, keeping the price at Rs99 a liter and maintaining a price hold on Tarang for a while to increase volumes, so as to offer strong competition to Haleeb.
But its ice cream division saw highest-ever sales during the aforementioned period, thus increasing its market share in the ice cream segment, reportedly, to 28 percent.
Distribution and marketing expenses chopped down by 6 percent year-on-year owing to the supply-chain issues, which stifled CY13 earnings. Apparently there were fewer media promotions carried out this period.
However, an upsurge in finance cost of 60 percent year-on-year, as the enterprise wanted additional finances for its new powder milk plant, added auxiliary pressure on already deteriorating bottomline.
Recently, Engro Foods Netherlands B.V., fully-owned subsidiary of Efoods come into a share purchase agreement for the sale of its North American Business which includes Engro Foods Canada Limited. As a result other expenses of Rs558 million in 9MCY14 were recorded.
EFOODS has launched two new products i.e. Olpers Lassi and Y Frooter in kids beverage series to tap into beverage group. The management is continuing to diversify by launching new product lines to be well positioned to do better in the next quarter.

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Efoods

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Rs (mn)                             9MCY14    9MCY13      chg

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Net Sales                           30,671    28,023       9%

Cost of sales                       24,987    21,116      18%

Gross profit                         5,684     6,907     -18%

Distribution and marketing expense   3,555     3,768      -6%

Administrative expenses                857       739      16%

Profit for the period                  251     1,240     -80%

EPS (Rs)                              0.33      1.62

Gross profit margin                  18.5%     24.6%

Operating profit margin               4.1%      8.6%

Net profit margin                     0.8%      4.4%

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