Despite all odds, major listed food sector companies showed a strong growth and its profit after tax increased to Rs 12.304 billion in the year 2011, up 25 percent as compared with the same period of 2010. The topline of the sample listed Fast Moving Consumer Goods (FMCGs) of Pakistan, representing 91 percent of the total market cap of the sector, increased by 26 percent on year-on-year basis in CY11, thanks to high volumes as well as inflation, analysts said.
The Pakistan economy is still in the queue to find a way out of the persistent energy shortages, prolonged political strains along with slower economic growth of under five percent for the last three years, Yawar Uz Zaman, an analyst at InvestCap said. Meanwhile, the higher food inflation keeps the chow away from the consumers' hand, he said. "Despite all odds, food sector of Pakistan showed a strong growth of 25 percent on year-on-year in terms of revenues during CY11", he said.
"The consumer sector's growth in the topline can be attributable to stubbornly high double-digit inflation prevailing in the country (CPI up 11.9 percent for January-December 2011 period) and higher input costs (electricity one percent and gas up 14 percent) following international oil prices that were up 16 percent during 2011", he said.
On the other hand, retail product prices were also substantially up by around 20 percent during the year resulting in huge increase in the topline of the sector. However, higher increase in the input costs compared to retail prices resulted in flat gross margin for the sector. Operating margins also remained flat despite substantial decline in the head of 16 percent on quarter-on-quarter basis during October-December 2011 period. Higher finance as well as operating expenses were partially offset by massive increase in the other operating income of the sector resulting no growth in the sector's net margins during CY11. The cost-price balance reveals that the major boost to the topline, and trickling down to bottomline, came mainly from volumes increase during the year amid another series of flood hitting the country during the year coupled with better product mix, aggressive marketing strategies and new products launchings by the sector giants, successfully resulting in increased consumer demand.
Nestle and Unilever Pakistan, who shared 38 percent and 33 percent, respectively (71 percent combined) the sector's profitability during CY11. Exceptionally during CY11, Engro Foods emerged as the supercharged FMCG (over 400 percent growth in bottomline) in the sector, remarkably grabbing the fourth position after Nestle, Unilever and Rafhan, outdoing Unilever Foods and National Foods.
Engro Foods contribution to the overall sector's profitability took a quantum leap of six to seven percent from one percent in CY11. "Despite massive growth in profitability, escalating financial cost of Nestle (Rs 1.1 billion, up 105 percent) and Engro Foods (Rs 1.04 billion, up 59 percent) restricted sector's bottomline expansion to a great extent. The sector's profits would have expanded to 35 percent, had financial charges been at normal levels", he said.
As far as individual companies' profitability are concerned, Nestle's profit after tax stood at Rs 4.67 billion, up 14 percent; Unilever Pakistan posted Rs 4.1 billion, up 25 percent; Rafhan Maize earned Rs 2.03 billion, up 11 percent, while Engro Foods, Unilever Foods and National Foods (in 1HFY12) made Rs 891 million (up 407 percent), Rs 617 million (up 41 percent) and Rs 290 million (up 145 percent) respectively during CY11.
"As far as market returns are concerned, following such healthy growth in profits, our FMCGs sample companies provided a solid return of 49 percent during CY11 as compared to the benchmark KSE100's return of -six percent on year-on-year basis", he said.
Going forward, tough economic conditions and instability on political front along with acute energy shortages would continue to cascade their impacts on business activities in the country, he said. On the other hand, high inflation may keep FMCGs revenues at an elevated level during 2012, he added.