July 11, 2012 (JS Research)
Engro Foods is scheduled to announce its 1H2012 financial result on July 17, 2012. The company is expected to post PAT of Rs1,098mn (EPS: Rs1.45) in 1H2012, compared to PAT of Rs217mn (EPS: Rs0.29) in the same period last year. In 2Q alone, the earnings are expected to register at Rs612mn (EPS: Rs0.81), up 26%QoQ. The growth is primarily derived from the dairy and juices segment. On the other hand, the bottom line of the ice cream business is still likely to remain in the red zone despite volumetric growth. Furthermore, EFOODS has introduced a new product line Omung Lassi, however, to gauge its impact on the profitability of the company we will have to wait for the public response. We currently have a ‘Hold’ stance on the stock with the 2012E PE of 25.3x.
EPS for 2Q2012 expected at Rs0.81
The top line of EFOODS is likely to grow by 8%QoQ to Rs10.4bn. An increase of Rs10/litre in Olper’s (Packaged Milk) prices is likely to augment the company’s revenues. The volumes in its Dairy segment are also expected to grow mainly because of higher sales of its tea whitener (Tarang) and Dairy Omung (for budget conscious society of the country). To recall, the recent hike in milk prices by Rs10/litre was only applicable on Olper’s while Dairy Omung prices remained intact. The continuous expansion and seasonality factor will likely enhance volumetric sales of its ice cream segment; however, the bottom line is still expected to remain in the red zone. Consequently, EFOODS is likely to report an EPS of Rs0.81 in 2Q2012.
New addition ‘Omung Lassi’
EFOODS has introduced a new product line Omung Lassi and is following an aggressive marketing campaign for the popularity of the product. As the product is in its initial stage, we will have to wait for the public response to gauge its impact on the profitability of the company going forward.
Outlook
EFOODS is in continuous expansionary mode and it currently trades at a 2012E PE of 25.3x. We have a ‘Hold’ stance on the stock. However, due to its expansionary nature, the key risk to our investment thesis remains the sales growth assumption and financial burden owing to its leveraged balance sheet.
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