A household name in the country, National Foods began its journey in 1970, predominantly as a spice company, and was the pioneer of the concept of hygienically packed spices and convenient, quick-prepare recipe mixes in Pakistan. At the time, spices were sold loose and unbranded in the market and NFL's concept was an unseen phenomenon that slowly but surely took the country by storm.
Although the markets seems to be teeming with competitors today, NFL still enjoys the largest market share in the country's spice and condiment business and is a force to be reckoned with on the international stage. A name recognised in over 30 countries across the globe, NFL's products are exported to the far-flung corners of the globe and over the years it has become one of the country's leading multi-category food companies, with over 250 products in 12 different product categories including Recipe masalas, ketchup, jams and condiments, powdered drinks, plain spices and desserts.
1Q FY14 HIGHLIGHTS The first quarter in FY13 saw the firm's key product categories including the recipe mix, sauces, pickles and desserts performing exceptionally well, allowing National Foods to sustain its growth momentum. During the period, sales grew by 5.4 percent with the gross margins improving by 248 bps.
Strong export's sales have on the whole helped keep up National's growth momentum through less than stellar macroeconomic conditions at home. During the first quarter the firm's export figures to markets in the Middle East, Europe and America made up nearly 8 percent of the firm's total revenues during the period. According to the firm's quarterly report, the top performing categories during the period remained the National Recipe mixes and Sauces. National Recipes sales have been witnessing consistent growth-having been bolstered by 25 percent during the previous quarter. The Sauces Category, moreover, also recorded a stellar 39 percent growth brought on by highly successful offer of a Ketchup and Chat Masala Combo Pack which went on sale starting during the peak seasonal period of Ramzan. This has helped improve the gross margins for both categories during the period.
National Food's focus on improving their gross margin on the whole is clearly visible, with the improved sales mix and a rigorous approach to curtailment of supply chain costs bearing clear results for the firm. NFL's operating profit, however, largely remained flat during the first quarter, mainly as a result of the strain put forth by distribution charges.
Showing the largest increment during the period under review-climbing 28 percent year on year, the increase in these charges can be explained by hefty hikes in promotion endeavours during the quarter. The firm has ever, however, taken cost rationalisation initiatives across the entire spectrum of business and tighter working capital management has also helped generate extra operating income for the firm during the quarter. This helped buttress the 9 percent increment seen in the firm's bottom line during the quarter.
Note that the quarter-which coincided with Eid-has traditionally been a very profitable period for the company. However, the above mentioned numbers appear relatively tame because of the exceptional spurt of growth the firm witnessed during the corresponding period of last year.
OPERATIONAL HIGHLIGHTS FY13 was a landmark year for International Division at National Foods, as it marked the incorporation of the firm's subsidiary, National Foods DMCC in UAE. Following the successful incorporation of their subsidiary, NFL further expanded their presence around the globe by starting the process of establishing similar subsidiaries in Canada and UK.
Moreover, NFL also seemed focused on expanding their share in already existing foreign markets during FY13. In a bid to expand their reach into the Middle Eastern markets, the firm also participated in the Gulf Food Festival held this spring. The Middle Eastern markets already are a major export destination for the firm's recipe mixes and pickles, and NFL is rapidly moving to gain market share in the condiments sector in the region. One of the company's growing stars in the region includes tomato and ginger garlic pastes, demand for which has been climbing recently according to company sources.
During the year National Foods also launched some of its major categories including Recipes, Pickles and Desserts in India, with plans on extending the product range in subsequent years
FUTURE OUTLOOK Witnessing unbridled profitability during the outgoing year, the expectations for the performance of the company at the close of CY13 are more than upbeat. Although there has been a slight uncertainty plaguing some other food businesses in the country, we believe NFL's strong presence in the local landscape and aggressive wooing of foreign consumers will continue to propel their growth prospects during CY14.
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National Foods Ltd
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Rs (mn) 1QFY14 1QFY13 Chg
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Sales 2,475 2,349 5.36%
Cost of sales 1,540 1,519 1.38%
Gross profit 935 829 12.79%
Gross profit margin 38% 35% 3 ppt
NPAT 218 200 9.00%
Earning per share (Rs) 5.25 4.82 -
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Source: Company Records
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National Foods Limited
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2010 2011 2012 2013
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Profitability Ratios
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GP ratio % 29.55 28.51 32.52 34.61
NP ratio % 1.93 4.18 8.14 7.88
Operating leverage % -81.89 385.63 288.57 83.6
ROA % 3.24 8.08 18.46 15.82
ROE % 12.39 27.7 50.17 43.65
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Liquidity Ratios
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Current ratio times 1.01 1.23 1.33 1.28
Cash to current liabilities times -0.64 -0.43 -0.28 -0.33
Cash flow from operations
to sales times -0.09 0.08 0.15 4.21
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Activity Ratios
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Inventory turnover ratio times 2.69 2.44 2.94 3.22
Total Assets Turnover times 1.99 2 2.38 2.31
Recievables Turnover times 17.02 20.42 24.86 18.16
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Investment Ratios
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EPS Rs 2.09 5.56 14.07 16.39
Dividend yield % 8.42 3.33 3.12 2.77
Market Value per share
@ year end Rs 43.92 75.00 192.14 360.65
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Source: Company Records