By: Taurus Securities Limited
Engro Foods Limited: Benefiting from falling international and domestic milk prices, along with the low fuel costs, we expect healthy growth in EFOODS 1HCY15 profits to PKR2.6 per share, up 5x.
In 2QCY15, profits are likely to improve by more than 5‐times on YoY basis to PKR1.2 per share. However, on quarter on quarter basis, we expect 15% lower profits owing to ex‐ pected 4% decline in revenues along with 46bps lower gross margins.
We expect company to record sales revenues of PKR12.1bn in the quarter ending Jun’15 (‐ 4% QoQ). Dairy Segment sales are likely to decline by 10.4% to PKR10.8bn due to lower volumes (falling Tarang sales in summer and Ramadan). On the other hand, ice cream seg‐ ment revenues are likely to jump by 125% QoQ to PKR1.3bn as sales usually peak in June quarter.
Gross margins would also shrink by 46bps to 26.9% in Jun’15. Though, sales mix would be tilted towards high margin products (Olpers & Omore), but summer effect (low shelf life) would drag the margins.
We expect earnings spree to continue for EFOODS as falling international powder milk prices (currently around USD1,750/ton, ‐50% from CY14 avg.) along with lower domestic milk prices would result in higher margins for the company. For CY15, EFOODS EPS would grow by manifolds to PKR5.2 (+350% YoY), compared to our previous estimates of PKR4.9.
We revise up target price of EFOODS to PKR189/share, and maintain ‘Hold’ due to recent stock price performance at KSE. At current levels, the scrip is trading CY15E PE and PS of 32.4x and 2.7x.