Engro Foods Limited (PSX: EFOODS) announced its half yearly accounts on Friday, posting decline in its net turnover. Pakistan's dairy sector is witnessing a boom in recent years and multiple new companies like Fauji Foods Limited (Formerly Noon Pakistan Limited), and Dalda Pakistan along with pasteurized-milk players have started to put pressure on EFOODS' margins.
But the most prominent is the growing competition in the tea whitener segment, where EFOODS commands market leadership. Market share of the tea whitener Tarang, which is the largest selling brand of Engro Foods, is finding it difficult to compete for the shelf space from new entrants like CupShup by Dalda and Dostea by Fauji Foods.
Engro Corporation has recently signed a deal with Dutch based Friesland Campina to sell its shares in EFOODS at a discount of about 26 percent. This could enable EFOODS to introduce new value-added products, primarily infant nutrition segment and high margin other milk products.
Gross margins posted a growth of 100 bps, on account of the downtrend in imported Skimmed Milk Powder price which was down 25 percent year-on-year during the period. Also, EFOODS increased the price of its flagship and second largest selling brand Olpers, during the second quarter.
The reduction in administrative and finance cost helped EFOODS report a 9 percent year-on-year growth in profit before tax. However, according to market sources, due to one-time super tax in the second quarter, Engro Foods reported its
half-yearly earnings of Rs1.96 billion (EPS: Rs 2.56) compared to Rs1.97 billion (EPS: Rs 2.58) in the same period last year. Previously this column has mentioned that the revenue shrinkage is becoming a persistent problem with EFOODS due to lack of diversification. Hopefully, EFOODS along with Friesland Campina will make the EFOODS a more diversified company.
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