• Profitability continue to ride North
• FMCGs return at par with KSE-100 on QoQ
• Outlook and Recommendations
In today’s Value Seeker, we present a profitability review of the listed FMCGs of Pakistan, which shows a massive growth in 1QCY12 (Jan-Mar12), along with its outlook.
FMCG Sector: Profitability continue to ride North
Despite of certain challenges faced by the country, FMCG sector looks immune to any thing in this regard and profitability of the companies are moving forward with a decent pace. Our sample of the consumer goods companies (Nestle, UniLever Pak, UniLever Foods, Engro Foods, Rafhan Maize and National Foods) continues to shine, posting a healthy revenue growth of 21% YoY during 1QCY12. This trickled down to the bottomline which grew with the same pace . On consolidated basis, bottomline of the companies posted 21% YoY growth in earnings during the same period. On QoQ basis, consumer industry witnessed revenue growth of 10% to Rs54bn. However, due to sharp increase in energy cost during the quarter (Gas, electricity, petrol and diesel up on average 9% QoQ) gross margin remain under strain down by 52bps QoQ to 28.1% in 1QCY12. At the same time, aggressive marketing and sales expenditure by the companies resulted in 28% QoQ increase in distribution and marketing expense to Rs6.8bn.
As far as individual companies are concerned, Engro Foods showed impressive profit after tax, posting a massive 309% YoY growth in 1QCY12, followed by National foods 180% YoY, Unilever Pakistan foods 26% YoY, Unilever Pakistan 9% YoY and Nestle 8% YoY.
FMCGs return at par with KSE-100 on QoQ
On the back of improving fundamentals and blessing of solid corporate results, KSE-100 index performed well during the 1QCY12. On QoQ basis, our sample companies return and the benchmark returns progressed in the same direction by posting 21% return during the 1QCY12. in our sample, FMCG scrip’s EFOODS leads the ship as the scrip provides solid 108%QoQ return, which than followed by National Foods 64% and Nestle 24% QoQ in 1QCY12. However on YoY basis, FMCGs outperform the bench mark index by posting 36% YoY return during the first quarter of CY12, as compared to bench-mark returns of only 17% YoY.
FMCG Sector:Outlook and Recommendations
Regardless of certain economic, political and external challenges, there are still many rationalize to stay ‘Optimistic’ on FMCG sector of the country. The increasing urbanization (enhancing demand of packaged products), double digit inflation, (resulting in high prices pass on to the consumer), increased in employed labor force, higher per capita income, and notably more than 50% of the population lies under 20yrs of age (who are the main target market of these companies) provides a sustainable future growth in volumes. Therefore, we continue with our likeness towards FMCG sector. As far as valuations are concerned, we are in the process of making EFOODS financial model, and we will initiate our coverage on the company soon, while at current levels we have ‘Sell’ call on ULEVER with Dec-12 TP of Rs4,887/sh.