Engro Foods; Offer for Sale
Engro Corporation (ENGRO) has expressed “Offer for Sale” (OFS) of 27mn
ordinary shares of Engro Foods Limited (EFoods) to general public at PKR
25/share. ENGRO has already offered 48mn shares through a Private Placement
to a group of foreign and local investors. The subscription is likely to take place
from 5th Juy-7th July 2011 during banking hours. The Offer Price includes a
premium of PKR 15/share, this transaction will generate a gain on sale of PKR
1,125mn, translating into after tax per share impact of PKR 2.24/share for
ENGRO. On CY12 earnings projection of the company the Efoods offers an
implied PER of 11.1x.
The proceeds of the transaction would be utilized in undertaking capital
expenditure for the following requirements:
? Increasing market share in the Dairy, Milk, Farming and Ice-cream
? Investment in its subsidiary, Engro Foods Supply Chain (Pvt.) Limited.
Company’s Products Overview
UHT diary with 39% EFood share leading the unprecedented growth
? Dairy and Juices (DJ) Segment - DJ has launched nine brands in the
domestic market over the span of five years. These brands include Olper’s
Milk, Olwell, Tarang Liquid and Powdered Tea Creamer, flavored milk by
the brand name Owsum, a range of juices and nectars by the brand name
Olfrute and others. The company further intends to expand its product
range with the introduction of Growing up Milk Powder (GUMP), Infant
Nutrition, Cereals, Yogurt drinks, etc.
? The Ice Cream segment is under the brand name Omoré. The brand has so
far has captured 17% of the market share, while experiencing a strong
volumetric growth of 20%. The segment has become second largest
contributor after UHT Milk.
Company’s Capex plan going forward
In order to maintain the market share, the company would need to adopt an
aggressive growth strategy, considering the food industry is in growth stage. For
CY11, Engro Foods has budgeted a capex of PKR 5.2bn including investment in
the supply chain subsidiary. Out of this, PKR1.6bn capex has been incurred
while 3.6bn is still to be invested. Capex will be funded by a mix of internal cash
generation (PKR 2.1bn), private placement (PKR 1.2bn) and the remaining
through debt financing.
Recent financial performance of the company
Net revenues of the company have grown at a CAGR of 94% from CY2006-
CY2010. In CY2010 it posted a profit of PKR 176mn compared to loss of PKR
433mn registered in CY2009. Moreover, in 1QCY11 Engro Foods recorded a
Profit after tax (PAT) of PKR 117mn. This accounted for 66% of profitability of
CY2010. As per management estimates, CY2011 EPS is likely to be PKR 0.97
whereas for CY2012 they expect to be around PKR 2.24/share.
? Engro Foods has a debt to equity ratio of 51% as at De 31st, 2010
? It is pertinent to mention that EFoods is likely to get a tax credit of 15%
announced in the federal budget of FY12.
? The company has offered Employee stock option scheme (ESOP). In a
span of four years from 2011-2014 the employees may exercise their call
option of total 21mn shares, which would lead to further dilution of shares.