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UNITY - FY23 Analyst Briefing Takeaways, (AKD Off the Analyst's Desk Nov 24, 2023)

Unity Foods Ltd (UNITY) held its corporate briefing session today to brief investors about FY23 results and shed light on future outlook:

 

• Company’s topline during FY23 stood at PkR101bn (up 15%YoY), while gross margins stood at 13.5% during the period (9.5% SPLY).
• Sunridge Foods retail outlets have had a good response and company intends to use it as a marketing tool as well. Management expects confectionary line (cupcakes/marble cakes etc.) to receive strong acceptance through the said outlets.
• Company plans to fully backward integrate into the business value chain, including setting up its own transportation/distribution channel alongside delving into agricultural/farming part of the business (UNITY plantations). 
• Local prices of palm and soybean oil remained volatile throughout the outgoing period, largely due to LC/import restrictions wherein both animal feed and palm oil were not classified as essential commodities by the authorities. This resulted in higher local prices and subsequently increased gross margins during the period.
• Management anticipates gross margins to normalize to 9-9.5% going forward.
• Company’s production capacities for edible oil/feed mill/solvent extraction/soap plant/flour processing/rice processing stand at 264k/302.4k/162k/15.6k/167.1k/39.42k MT, respectively. The said capacity is to increase further with the addition of chemical refinery by 3QFY24.
• Bulk edible oil segment fell by 9.2%YoY (-31% volume/+22% price) while consumer oil side grew by 43%YoY (+22% volume/ +21% price), respectively.
• Volumes of company’s edible oil segment were as follows: Dastak & Ehtimam/Zauqeen 37.9k and 30.5k MT, respectively. On the staples front, Sunridge’s volumes have been steadily increasing, standing at 101.8k MT (up 47%YoY). In terms of product segmentation, Dastak is deemed to be a more popular/premium brand in the edible oil segment.
• Edible oil inventory stood at 500-550 MT by Sept’23 end, with average prices ranging between US$860-900/ton.
• With regards to Unity Plantations, company decided to backward integrate in order to exercise control and improve the quality of raw materials/inputs into their production process. Management appraised the SIFC’s recently introduced green initiative to promote agri activities in the country.
• Management targets Unity Plantations standalone IRR to be around 35-40%.
• With regards to FX losses, company has shifted from supplier’s credit basis to LC-at-sight. This shift has effectively restricted the company's FX exposure to the transit time only (40-45 days). Hence, management expects FX losses to be insignificant going forward.

Company’s 5-year tax credit is set to expire soon under SRO-65E, hence management expects higher effective tax charge going forward under the NTR. To counter this, company is planning to acquire land in the SEZ in order to reduce the tax liabilities going forward.