By: Syed Sufyan Subhani
Taurus Securities Limited
EFOODS reported 9MCy14 standalone net earnings of PKR252mn (EPS: 0.33) showing a decline of 80% YoY as margins attrition continued in 3q as well. Although top line managed to achieve a growth of 9% YoY in 9MCY14, operating profits dipped by a hefty 47% due to cost pressures.
On a QoQ basis in 3QCY14, although net sales witnessed a growth of 10% QoQ, the gross profits dipped by 19% as COGS jumped by a higher 18% QoQ. Flat marketing & Dist expense QoQ & a 10% rise in admin expense led to operating profits decreasing by 75% to PKR130mn. Provisioning of Al-Safa’s remaining book value resulted in other expenses rising by 249% bringing the quarter in loss on an EBIT level, while financial charges further augmented the losses.
The company has highlighted that consolidated profits during 3q stood at PKR0.63/share (9MCY14: EPS of PKR1.06) from continuing operations, but this comes about due to tax reversals, while on a pretax basis, the company was still in a loss during the quarter (excluding the one off loss).
Though Olpers prices have been raised, the flagship product’s (Tarang) price has not been raised till now, which is likely to keep margins under pressure in 4q as well. Increased competition from new liquid tea whiteners is likely deterring the price rise of Tarang. The stock has heavily underperformed the market since touching its peak of PKR162 in July-13. After roll forward and updating our macro assumptions, our stance comes out to Sell.