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A Peep Into Engro Foods Ltd_Dec 03

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Friday, December 03, 2010 A peep into Engro Foods Ltd. Engro Foods (Pvt.) Ltd. (EFL), a wholly owned subsidiary of Engro Corporation (ENGRO), commenced its first full year of operations in 2007. The Company is currently consolidating its successful brand portfolio delivering the largest market share (40% market share) in the UHT liquid milk category. The Company’s portfolio now includes: Olper’s milk, Olper’s cream, Olwell, Tarang, Tarka, Owesome, Omore and Olfrute. Dairy Segment EFL operates
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    A peep into Engro Foods Ltd. Engro Foods (Pvt.) Ltd. (EFL), a wholly owned subsidiary of Engro Corporation (ENGRO),commenced its first full year of operations in 2007. The Company is currently consolidating itssuccessful brand portfolio delivering the largest market share (40% market share) in the UHTliquid milk category. The Company’s portfolio now includes: Olper’s milk, Olper’s cream,Olwell, Tarang, Tarka, Owesome, Omore and Olfrute. Dairy Segment   EFL operates two dairy processing plants - third-generation UHT milk plants - located inSukkur, and Sahiwal. The Company’s large milk collection network in Punjab has allowedfurther rationalization of its cost structure.During 2008, EFL established Engro Dairy Farm at Nara, Sindh. As part of its long-termstrategy, the farm will provide international standard milk at quite competitive price offeringexcellent opportunities to the region in the mid-term. Presently, the number of Australian cowsat the farm stands at 2,468 animals (1,504 adult cows). Ice cream Segment   EFL entered the ice cream market on April 06, 2009. The project has been launched with adedicated state-of-the-art production facility near EFL’s Sahiwal Plant. Current designedcapacity of ice cream segment stands at 17mn litres per annum (47,000 litres per day). Icecream is a high gross profit margin business averaging around 30%.Initially, Omore was launched in selected part of Punjab province, though the Company isplanning to enter in to Sind province in early 2011. With the limited geographic exposure, EFLis the second largest player in the ice cream segment with a market share of 17%. Juice Segment   EFL entered the juice segment in May 2010 with the brand name of Olfrute. EFL expects tocapture 20% market share of the juice segment in the next 3-4 years. Rice Processing Plant   On Nov 03, 2010, EFL incorporated a wholly owned subsidiary - Engro Foods Supply Chain(Pvt.) Ltd (EFSCL) – a sub-subsidiary of ENGRO. The principle activity of the sub-subsidiaryis to produce, manufacture and trade all kinds of raw, processed and prepared food productsincluding agriculture, dairy and farming products. For this purpose, 491acres of land has beenacquired at Muridke out of which a meager 65 acres of land has been reserved for the RiceProcessing Plant.In late 2009, the Board of Directors of Engro approved the setting up of the rice processingplant with a production capacity of 20k Tons due to become operational in late FY10. EFSCLwill process paddy into rice on toll for EXIMP. Listing plans Initially, when Engro launched EFL, it planned to get it listed by FY09-FY10. Now, it is tryingto capture EFL’s value in the project implementation stage so as to get a higher return. We thusforesee, EFL being offered for listing by FY2012-13! Friday, December 03, 2010    Valuation Our DDM based fair value of the EFL – contributing ultimately to ENGRO - stands atPKR62.27/share. Given below are the key forecasted financials of Engro Foods Ltd.: Key financial figures   PKR mn FY06A FY07A FY08A FY09A FY10E FY11F FY12FSales Milk 1,506 3,631 8,173 13,914 17,407 22,014 26,029Ice Cream - - - 751 1,694 2,083 2,440Juices - - - - 1,008 1,352 1,700 Total 1,506 3,631 8,173 14,665 20,109 25,449 30,169PAT Milk (428) (620) (554) 111 653 1,046 1,497Ice Cream - - - (546) (296) (240) (134)Juices - - - - (106) (88) (43) Total (428) (620) (554) (435) 251 718 1,320DPS - - - - - 1.60 2.74 Assumptions Segment Loss Break-even Profitable Long-term PAT margin Milk FY06-08 FY09 FY10 onward 12.75-13.00%Ice Cream FY09-12 FY13 FY14 onward 16.00-17.00%Juices FY10-12 FY13 FY14 onward 6.00%    Contact us   Head Office GF-01, Techno City, Hasrat Mohani Road,KarachiPh: +(92-21)-32270808-13Fax: +(92-21)-32270519www.ahcml.comAHCM Research is also available on Reuters Knowledge Sales Contact No.92-21-32270801-7 Fax.No.92-21-32270524E-mail:sales@ahcml.com  Research Contact No. 92-21-32270808-11 Fax No. 92-21-32270520E-mail:research@ahcml.com  Disclaimer    All rights reserved. The information presented in this report is compiled from sources that we believed to be reliablein the preparation of this report. However, we do not accept any responsibility for its accuracy & completeness. Thisreport is not intended to be an offer or solicitation to buy or sell any security. AL Habib Capital Markets (Pvt.) Ltd.and its employees may or may not have a position in or with respect to the securities mentioned in this report. In particular, the report takes no account of the investment objectives, financial situation and particular needs of investors who should seek further professional advice or rely upon their own judgment before making any investment.

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Nov 6, 2017
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