April 11, 2012

Engro Foods Limited has planned to invest PKR8.7 billion (US$96 million) in 2012 mainly for expansion of its various production units and sales channels in different portfolios, analysts said.

The expansion plan comprises investing PKR2 billion (US$22 million) in the powdered milk business, whereas the rest of PKR6.7 billion (US$74 million) will be invested to acquire more livestock, expand dairy capacity and cold chain infrastructure development.

It will be financed by a mix of internal cash generation of PKR3.7 billion (US$41 million) and a loan of PKR5 billion (US$55 million), analysts said adding the company was planning to introduce new products in the UHT and the ice cream segment where the emphasis would be on the products that would be new to the Pakistani market, the details of which were yet to be disclosed.

Furthermore, the company is also planning to enhance its North American operation by launching 'paratha' and rice products.

Engro Foods Limited is a growth story at local bourse, which has outperformed the market by 93% year to date. The company is continuing with its aggressive growth strategy and plans to invest a further PKR8.7 billion (US$96 million) for expansion in 2012.

Moreover, the consistent sales growth and selling off its 70% stake in loss making Engro Foods Supply Chain to Engro Eximp can further aid the bottom line of the company.

Dairy and juices segment reported hefty earnings of PKR1.4 billion (US$15.5 million) in 2011, a growth of 100% with net profit margins improving by 1ppt to 5%. UHT sales grew mainly because of higher sales of its tea whitener (Tarang) and a new variant Dairy Omung (catering to budget conscious society of the country).

It is forecast these two products are likely to be major contributors towards the growth of the company in the coming years.

The ice cream business (Omore) witnessed an increase of 62% in its revenues to PKR2.6 billion (US$28.7 million) and gained 7ppt in market share to 24% from last year. However, the segment reported losses in 2011 as the segment is still in its growing stage and much is being spent on the marketing of the product so as to create the brand name.