EFOODS feeling the competition

Engro Foods Limited (PSX: EFOODS) announced its 1QCY17 financial performance yesterday, and it hardly had any surprises; the food company continued with its dwindling profit perfomance amid heated competition. Earning for 1QFY17 are down by 70 percent year-on-year, and there was no dividend, announcement.

CY16 was a challenging year where the firm reported a decline in earnings. Revenues continued to fall and there was some volume and gross profit tightening as volumetric growth remained under pressure in the tea whitener segment due to changes in tax regime and increased competition. The changes in the tax regime came from budget 2016-17 that included a change in the GST regime from zero rating to exempt, which has resulted in an increase in the cost.

These constraints have continued their way in FY17 as well. And apart from the squeeze in the tea-whitener sales, the firm has also been facing pressure from higher international milk prices, which is likely to cap gross margins further with already limited pricing power of the industry.

EFOOD’s share price has also on a losing streak; the lacklustre perfomance of the stock on the stock exchcange is indicative of weak fundamentals and rising competitive forces keeping EFOODS down. Now that the Dutch firm, FrieslandCampina has taken over EFOODS, it will be interesting to watch how the firm gets out of the rut and turn things around. CY17 will be an important year if EFOODS wishes to turn the tables!