Investors upbeat on Fauji Foods updated business plan

Aftab Ahmed

Islamabad: Investors upbeat on Fauji Foods’ updated business plan. Fauji Foods Limited believes to turn their losses soon into profits on the back of their value-added products and distribution of milk, says an analyst at Pearl Securities. Pakistan being the 4th largest milk producer in the world enables FFL to add new product lines and maximize penetration of existing products.

Fauji Foods Limited (FFBL) has held a session with investors regarding its updated business plan. Moreover, the rapid urbanization also poses an upside potential for the formal dairy sector. Thus, the management is optimistic about the future financial performance in terms of diversified sales targets.

Fauji Foods Limited (FFL) held its corporate briefing session recently to shed light on its recent financial performance and future roadmap. Ranging from the UHT milk category to tea whitener, butter, cream, cheese, flavored milk, and juice, FFL has a diverse product portfolio catering to varying consumer dairy preferences.

The company mentioned that over the last year, it has streamlined its distribution network and has expanded its market reach all across Pakistan. Their distribution channels are primarily focused on institutional sales and e-commerce routes while export plans are on cards too.

Analyst at BMA capital has said that “ Company’s flagship brand, Nurpur UHT Milk, recorded a growth of 16% YoY in 1QCY21”. Its second-largest volumes driving category is Dosti Tea whitener which witnessed a growth of 37% YoY during the same period.

The company mentioned that it is gradually shifting its focus from volume-driven products to value-added products. Commenting on their performance in 1QCY21, the management mentioned that the Cheese category recorded the largest growth of 168% YoY followed by the Nurpur Salted Butter category at 75%.

Fauji Foods gross margins have witnessed an impressive turnaround in 1QCY21 at 11% compared to -6% in SPLY. The turnaround was mainly led by operational efficiencies and changes in product mix with greater focus on value added products.

During the past six months, the company has launched several new product categories, including the introduction of Butter Tub and Dairy Cream in Jan’21, followed by renovations in the Cheese category in Jun’21. The company also has other new innovative products in the pipeline which it plans to bring on board in the coming years.

Fauji Foods loss is declined due to (1) across the board volumetric growth amid higher prices, (2) lower finance cost due to financial restructuring amid a decline in interest rates and (3) change in management strategy to deploy resources in an efficient manner (S&A as a % of sales down 5.8% YoY) says an analyst at Foundation Securities in a research note.

Currently, they have a market share of around 5.7% in the UHT milk category, but the company believes that it will improve going forward due to their customer-oriented food solutions. It plans to strengthen its market reach for all products through improvements in supply chain processes and customer-focused marketing strategy.

From CY16-19, the company has spent around PKR 7.3Bn+, in CAPEX to upgrade its plant and machinery and to improve production process. The management believes that due to rising young population and rapid urbanization in the country, the formal dairy sector of Pakistan has strong growth outlook.

Noor analyst at BMA capital has further added that FFL is not in our official coverage list but “given the impressive improvement in financial performance and robust growth outlook of value-added product portfolio, FFL seems like a good value proposition as the scrip is trading at a P/S multiple of 1.70x which is relatively less compared to the sector average of 2.50x.”