Report

Intermarket Pulse: Pakistan Food producers: 1QCY18- Another weak quarter for consumers

  • IMS Food Universe (EFOODS, NESTLE, NATF and UPFL) posted combined 1QCY18 NPAT of PRs3.9bn, down 12%YoY (incl. FFL: down 17%YoY). Dairy company profits dropped 15%YoY (NESTLE- Dairy segment, EFOODS and FFL) while non-dairy results (NESTLE- Beverages, NATF and UPFL) depicted a 13%YoY decline; UPFL outperformed.
  • Dairy players, Nestle (dairy) and particularly FFL reported a 6%/54%YoY jump in revenue, on expanding UHT footprint, although translation bottlenecks remain for FFL (1QCY18 LPS: PRs1.17 vs. PRs0.85 in SPLY). EFOODS came in the black during 1Q, however, dairy volumes were sluggish (1Q sales: down 19%YoY). Within non-dairy names NATF depicted an 8%YoY drop in profits while UPFL posted 26% YoY growth.
  • The companies we track are trading at an expensive TTM (weighted average) P/S of 3.5x and P/E (ex EFOODS & FFL) of 37.4x. We have a Sell stance on EFOODS with a TP of PRs80/sh. Given that the sector is trading at a significant premium vs. the broader market and growth is not coming through, we would wait before advocating fresh entry in this space especially in the dairy segment. 
Underlyings
Fauji Foods

Fauji Foods Limited is a Pakistan-based company, which operates a spray dryer for processing of milk powder. The Company is engaged in processing and marketing of dairy products, juices and jams. The Company's products include Processed Dairy and Fruit Products. Its Dairy Products include Nurpur Lite, Flavored Milk, Nurpur Butter, Whole Pasteurized Milk and Ultra High Temperature (UHT) Milk. Its Processed Dairy includes Skimmed Milk Powder, Full Cream Milk Powder, UHT Cream and Nurpur Cheese.

NESTLE PAKISTAN LTD

Nestle Milkpak is engaged in the production, sale and export of dairy products, confectionery, culinary products and fruit juices. Co.'s products include Milkpak Milk, Milkpak Butter, Milkpak Uht Cream, Milkpak Desi Ghee, Nido powdered milk, Milo Powder chocolate energy food drink, Milo RTD, Nescafe Classic instant coffee, Frost fruit drinks, Nestle Orange Juice, Lactogen infant milk formula, Cerelac infant cereal, Nestle Rice infant cereal, Nestle Wheat infant cereal, Neslac growing up milk, Maggi 2-Minute Noodles, Nestle Sweet Treats dessert mixes, Polo mints and candies, Kitkat, Smarties, Fox's, Nestle Lion, Nestle Crunch, Nestle Classic milk chocolate and Nestle Pure Life bottled water.

Unilever Pakistan Foods

Unilever Pakistan Foods Limited is a Pakistan-based company, which manufactures and sells consumer and commercial food products under brand names of Rafhan, Knorr, Energile, Glaxose-D and Food solutions. The Company's brands include Blue Band, Brookebond Supreme, Clear, CloseUp, Comfort, Cornetto, Domex, Dove, Fair & Lovely and Fruttare. The Company's product range covers soups, bouillons, sauces, noodles and complete meals. It produces frozen foods in Europe, under the Findus brand in Italy, Birds Eye in the United Kingdom and Iglo in other European countries. It offers margarine and spreads in European countries and North America, with brands, such as Becel (the Netherlands), Flora (the United Kingdom) and Take Control (the United States). It also offers home and personal care products, including cleansing and hygiene products. Its home care products include Brilhante, Cif, Comfort, Domestos, Omo, Skip and Snuggle. The Company is a subsidiary of Conopco Inc.

Provider
Intermarket Securities Limited
Intermarket Securities Limited

​Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.

Analysts
Yusra Beg

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