Engro Foods Limited’s Net Profit plunged 70%

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Engro Foods Limited’s net profit plunged 70% to Rs330.81 million in the quarter ended March 31, mainly due to notable decline in sales, according to bourse filing Thursday.

The firm had booked a profit of Rs1.10 billion in the same quarter last year. Earnings per share declined to Rs0.43 from Rs1.45 in the corresponding period.

“The notified result stood below our expectations,” Topline Securities said in a post-result comment.

Sales declined 25% to Rs8.81 billion from Rs11.74 billion. “Revenues fell short of expectations mainly due to furious competition in the tea whitening segment, which has affected sales of Engro Foods’ flagship tea whitener, Tarang, we believe,” the brokerage house’s analyst Hashim Sohail said in the comment.

“As per AC Nielsen, share of Engro Foods in the UHT (Ultra Heat Treatment) milk segment was at 48% in November 2016 (down by 6 percentage points since December 2015 readings),” it said.

Gross margins of the company declined 8.5 percentage points on a year-on-year basis to 20%.

“We attribute this to lower volumetric sales during the quarter (amplifying the impact of fixed charges) and changes in sales tax regime,” he said.

In the federal budget for fiscal year 2016-17, the government withdrew zero-rated sales tax facility from the company and gave it tax exemption status. Besides, it would pay 0.5% technical fees and 2% of net revenues to Engro Corporation (parent company) and Royal FrieslandCampina (acquirer of Engro Foods), respectively, he said.

On a sequential basis margins improved by 5.7 percentage points on quarter-on-quarter basis with the commencement of flush season (January-April), which usually brings down raw milk prices.

“We highlight here that the Supreme Court conducted legal proceedings against some packaged milk brands for milk adulteration. To point out, the Pakistan Council of Scientific and Industrial Research (PCSIR) termed six UHT milk brands including Olpers as fit for human health in January 2017.

“However, we believe, the incident must have made consumers sceptical towards the use of packaged milk, thus further putting pressure on sales,” Sohail said.

“We flag increase in competition from new entrants in tea whitener category, decline in consumption due to poor law and order situation, adverse regulatory changes and volatility in international raw milk prices as key risks for Engro Foods,” he added.

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