National Foods Limited (PSX: NATF) was established as a private limited company in 1970. It was later converted into a public limited company under the repealed Companies Ordinance, 1984. Its parent company is Associated Textile Consultants (private) Limited.
The company is a popular name in the country with its various food-based products such as salt, spices, recipe mixes, ketchup, jam, and the fairly recent addition of mayonnaise and snacks.
Some 33.5 percent shares are with the associated companies, undertakings and related parties that solely includes ATC Holdings (Private) Limited (formerly, Associated Textile Consultants (Private) Limited). With around 39 percent held under the category of the directors, CEO, their spouses, and minor children. Within this, Mr Khawar M. Butt holds the majority of the shares - about 12 percent. Around 15 percent shares are held with foreign companies while a little over 7 percent is with the local general public. The remaining roughly 6 percent is with the remainder of the shareholder categories.
While National Foods topline has been on the rise consistently throughout the decade, its profit margins have also been largely maintained.
During FY15, National Foods topline grew by nearly 14 percent. This was mostly volume driven as price could not be increased due to the competitive landscape. Cost of production also rose to claim 68 percent of the revenue, as compared too previous year’s 65 percent. This was attributed to chilli, pepper, garlic, and coriander; these were negatively impacted because of weather conditions. Sales revenue was also impacted due to change in distributors, both in the local market as well as the international market. The effect of higher costs was a decline in gross margins; this also trickled down to the bottomline as net margin fell to close to 6 percent- the lowest in previous five years. In addition, distribution costs also drove down margins since the presence of competition did not allow for price increases, thereby effort had to be made on the distribution and promotion front to improve volumetric sales.
Sales revenue growth stood at 12 percent in FY17. This was again a volume driven growth. Since the company operates in the FMCG sector, where multiple alternatives are present for the consumer, it is difficult to increase selling prices. Most of its major revenue driving categories saw a subdued growth trend. Cost of production saw a marginal decline to 67 percent of topline. The effect of this on bottomline was to a similar extent as net margin rose to a little over 6 percent. Distribution cost, continued to grow as a percentage of revenue, as new a TVC was developed, in addition to recipe campaigns and the 4th season of “National ka Pakistan”- a cooking show.
During FY18, topline increased by 9.5 percent. In FY17, a new product, mayonnaise was added to its product portfolio, along with another variant for snacks. Both the items were well received by the consumers and their growth were observed to be in line with progressions. Cost of production reduced to 65.6 percent of the revenue which created a positive impact on gross margins that grew to 34 percent (FY17: 33 percent). However, the same could not be seen for net margin as the latter reduced close to 6 percent. This was due to an increase in distribution costs, administrative costs- both of which saw a major change in salary expense, and finance costs as a percentage of revenue along with the additional expense of impairment loss on doubts of a considerable Rs108 million.
In FY19, the company saw a very marginal growth in sales revenue at 2.6 percent. The year FY19 was a difficult year for Pakistan with high cost on business, increase in inflation, currency devaluation, etc. This also had a negative impact on consumer’s disposable income that led to a slow-down in domestic consumption. On the company’s front, its new facility at Nooriabad commenced round-the-clock production during the first quarter of FY19. During the year it also expanded its product portfolio by adding National Garlic Mayo that also received positive feedback from the market.
Cost of production, on the other hand, grew to almost 68 percent of the revenue. Some part of this inflationary pressure was passed on to the consumers. While this reduced gross margins to 32 percent, net margin actually increased to 6.6 percent owing to a major growth in income coming from a net exchange gain. This combined with a lower distribution cost contributed to an improved bottomline for the year.
Recent result and future outlook
During FY20, there was a 16 percent incline in sales revenue. During the year, the company launched Rozana Recipe range that catered to the requirement of making of everyday meals. This included three variants. In addition, the company also recreated a new image for its existing Recipe Mixes. Moreover, while domestic market sales benefitted from brand loyalty and promotions, sales revenue from international market was driven by currency devaluation. However, the marginal increase in cost of production to 68 percent of revenue had a similar effect on the net margin that hovered around 6 percent.
While the future cannot be ascertained, the company has made a market observation that during the pandemic, the consumers have developed a preference for healthy food products, which could pose as an opportunity for the company to tap on in the future.