By: Taurus Securities Private Limited
In its 1QCY15 results, announced yesterday, Engro Foods Limited reported marked improvement in profitability on the back of improving margins. During the quarter, consolidated earnings surged by around 5x YoY to PKR1.1bn (EPS PKR1.4) compared to PKR190mn (EPS PKR0.25) in SPLY. Improvement in results is in line with our broad estimations as projected in our report titled ‘Historic low milk powder prices to restore margins’ on January 21, 2015. On quarter on quarter basis, company profits improved by 93%.
During the quarter, company sales revenues improved by 24% YoY while gross margins stood at 27.3% (up 7pps YoY). We attribute the revenue increase to higher volumetric sales while lower milk prices augmented the margins.
For CY15, we expect 3x profit growth in EFOODS to PKR4.9/share and maintain ‘Buy’ on the scrip with the TP of PKR166/share. At current prices, the scrip offers 16% and is trading at CY15F PE of 29.2x and PS of 2.1x.
1Q profits increased 462% YoY to PKR1.4/share: In 1QCY15, EFOODS sales increased by 24% YoY to PKR12.6bn while gross margins stood at 27.3% (up 7pps YoY). We attribute the revenue increase to higher volumetric sales especially Olper’s and Tarang. On the other side, margins would have expanded because of lower powder milk prices and cheaper local milk procurement. To highlight, milk powder prices have crashed to USD2,446/ton from CY14 average of USD3,496/ton. Further, admin cost declined by 19% to PKR326mn while finance cost showed an increase of 4% to PKR267mn despite lower interest rate.