Topline Alert

EFOODS: 2013 EPS Rs1.14

January 24, 2013

Engro Foods (EFOODS) has reported 2013 consolidated profits of Rs870.4mn (EPS Rs1.14) which is 58% lower than 2012 earnings of Rs2.6bn (EPS Rs3.4). Decline in earnings in mainly attributed to 6% fall in sales revenue to Rs38bn in 2013 in addition to 4pps dip in gross margins to 21.6%. This also include onetime charge of Rs208mn (Rs0.3 per share) relating to sales tax payable for the period (13 June to 18 July 2013) when FBR temporarily removed zero rating of dairy products. Excluding onetime charge, company consolidated profit would have been to the tune of Rs1.3 per share. Depressed sales are mainly on account of distribution issues being faced by the company and overall slowdown in UHT milk market while price competition with Nestle caused margins to fall. On the other side, finance cost reduced by 13% to Rs785mn due to low interest rates while ongoing capex resulted into decline in effective tax rate to 26% vs. 34% in 2012. On quarterly basis, companys profits stood at Rs370mn (loss of Rs0.48) compared to Rs128mn (EPS Rs0.17) in previous quarter. Though, sales revenue increased by 9% QoQ to Rs9.9bn on the back of promotions on Tarang in an effort to pump volumes, margins declined by 5pps QoQ to 12.8% because of price discounts. However, selling expenses also declined by 11.4% QoQ to Rs1.26bn because of lesser media campaigns. Though decline in margins caused the company to post loss, onetime charge of sale tax also lent its hand. Excluding Rs208mn, profit of the quarter could be Rs0.3 per share. Though company kept facing issues in 2013, we are still optimistic on the long-term growth story. Regards, Zeeshan Afzal

Best Brokerage House in Pakistan by Asiamoney 2011, 2012 & 2013 (3 consecutive years) Won Pakistan 100 & Arabia 500 awards by All World being fastest growing firm in Pakistan

Topline Securities

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