Company Name:

Engro Foods

Industry of operation:

Food Industry

Introduction of Company:

Engro Foods is among the biggest and fastest growing companies in Pakistan with a vision to cater to local needs with products conforming to global standards.

Engro foods is highly passionate about providing millions of people across the length and breadth of Pakistan and beyond with the ultimate brand experience. Engro portfolio comprises some of the country's biggest and best selling brands including:

Olper's Olper's Lite Omore Dairy Omung Olper's Lassi Tarang

Whether it is thick, creamy all-purpose milk, scrumptious ice-cream high on nutrition content or refreshing range of beverages, approach remains largely the same as we strive to keep product innovation at the forefront of our guiding philosophy and consumer satisfaction at the heart of company operational strategy.

The business owns two milk processing plants in Sukkur & Sahiwal and operates a dairy farm in Nara.

International expansion:

Engro foods is exploring new horizons and untapped markets

Encouraged by phenomenal success in the local market, it has recently made big leap into the 632 billion dollar global foods business with the acquisition of Al-Safa, a leading halal meat brand of North America.

Newly formed global venture Engro Foods Canada Ltd and its subsidiary Engro Foods USA, LLC give it the distinct advantage of being Pakistan's first local conglomerate to explore the world's fastest growing consumer segment and acquire a top quality international meat brand.

We have strengthened our presence in the North American market by expanding our product portfolio and drawing upon our local expertise in the foods business to emerge as a major contender and a key player within the international market.

Subsidiary:

The parent company of Engro foods is Engro Corporation. Engro Foods Limited is an 87% owned subsidiary engaged in the manufacturing, processing and marketing of dairy products, ice cream and fruit juices.

Financial Highlights:

Market capitalization:

Year 2013 2012 2011Market capitalization

93087000000 46357000000 17779000000

Market capitalization defines the value of a company in terms of market price per share and no of shares traded. The increasing amount of market capitalization shows that over the time both the number of shares traded as well as the share price has increased.

Market share:

Year 2013 2012Market share 49% 25%

Market price per share:

Year 2013 2012 2011Market price per share 121.43 60.87 23.65

Major competitors

Nestle Millac Halla Prime Nurpur Nirala

Ratio Analysis:

Liquidity Ratios

1. Current ratio:

Current Ratio= current assets/ current liability

year 2013 2012 2011 2010Current Assets 8012194 9512702 6369139 3737993Current Liabilities 4655356 4441432 3480987 2521517

Current Ratio1.721070096 2.141809669 1.829693417 1.482438151

2013 2012 2011 20100

0.5

1

1.5

2

2.5

Current Ratio

Series1

curr

ent r

atio

Current ratio matches current assets with current liabilities and tells us whether the current assets are enough to settle current liabilities. From 2010 to 2012 the current ratio has increased which means that there is increase in company’s efficiency in utilizing its current assets to pay off its current liabilities and the creditors. There are no liquidity issues. From 2012 to 2013 the ratio has decreased but as it is above 1 therefore it is satisfactory. The company is still able to pay off its current liabilities.

2. Quick Ratio:

Quick ratio= (current assets - inventory) / current liabilities

Year 2013 2012 2011 2010Current Assets 8012194 9512702 6369139 3737993Inventory 3083583 3494605 2637816 2089221

Current liabilities 4655356 4441432 3480987 2521517Quick ratio 1.05869690

71.354990237 1.071915236 0.653880977

2013 2012 2011 20102008200920102011201220132014

Quick Ratio

Series1

quick

ratio

Quick ratio measures the liquidity of a business by matching its cash and near cash current assets with its total liabilities that is why we exclude inventory from its current assets. Since 2010 to 2013 the company has a constant increase in its quick ratio which means the efficiency of utilizing its most liquid assets to pay off current liabilities is constantly increasing.

Profitability ratios:

3. Return on Capital Employed:

Return on Capital Employed=Net operating profit after taxes /capitalWhere Capital= (long term liabilities + shareholder equity)

years 2013 2012 2011 2010net operating profit after taxes 210960 2595173 890973 175622shareholder equity 10715210 10054273 7236942 5124407long term liabilities 7126994 6023070 5610000 4625000capital 17842204 16077343 12846942 9749407

Return on Capital Employed1.182365138 16.14180278 6.935292461 1.801360842

2013 2012 2011 20100

5

10

15

20

RCE

Series1

RCE

A higher value of return on capital employed is favorable indicating that the company generates more earnings per dollar of capital employed. From 2010 to 2012 company has been very successful in using the funds generated through long term liabilities and shareholder equity. The company was making more profit than the funds invested in the company. However the ratio has decreased in 2013 but it doesn’t necessarily means that company is not performing good. It may also means that company is investing its profit somewhere else for example for expansion etc.

4. Net profit margin

Net profit margin=Net Operating Profit After Taxes/net sales

years 2013 2012 2011 2010net operationg profit after taxes 210960 2595173 890973 175622net sales 37890688 40168919 29859226 20944943

net profit margin0.556759487 6.460649339 2.983911907 0.838493569

2013 2012 2011 201001234567

net profit margin

Series1

net p

rofit

mar

gin

From 2010 to 2012 the company has increasing net profit margin.  It means out of every dollar of sales the company has increasing actually earnings. However in 2013 the ratio has decreased which means a low margin of safety. Higher risk that shows a decline in sales will erase profits and result in a net loss.

5. return on equity

Return on equity=Net Operating Profit after Taxes /shareholder equity

years 2013 2012 2011 2010net operating profit after taxes 210960 2595173 890973 175622shareholder equity 10715210 10054273 7236942 5124407

return on equity1.968790159 25.81164247 12.31145697 3.42716728

2013 2012 2011 201005

1015202530

ROE

Series1

ROE

From 2010 to 2012 return on equity has increased meaning that the company is efficient in generating income on from the funds taken from shareholders. However there is decrease in 2013 may means that company isn’t making much profit but it can also mean that company is investing these funds somewhere else which can cause decrease in profit in short term.

6. gross profit margin

gross profit margin=gross profit/net sales

Years 2013 2012 2011 2010gross profit 8173174 10320618 6628781 4392826net sales 37890688 40168919 29859226 20944943

gross profit margin21.57040273 25.69304392 22.20010994 20.9732058

1 2 3 40

5

10

15

20

25

30

GPM

Series1

GPM

There is increase in gross profit margin from 2010 to 2012 which means that company has improvement in controlling its indirect expenses however from 2012 to 2013 there is decrease which may mean there is increase in indirect expenses.

Gearing Ratios:

7. Capital based gearing

capital based gearing=long term liabilities/(LTL + SHE)

Years 2013 2012 2011 2010long term liabilites 7126994 6023070 5610000 4625000shareholder equity 10715210 10054273 7236942 5124407

capital based gearing39.94458308 37.46309325 43.66797951 47.43878269

2013 2012 2011 20100

10

20

30

40

50

Capital Based Gearing

Series1

Capi

tal B

ased

Gea

ring

The ratio has decreased from 2010 to 2012 which means that the amount of debt on which company was operating has decreased which means the risk has decreased. However there is slight increase in 2013 which may mean that debt has increased but this debt may have been taken for making more profits in future through investments etc.

8. Income based Gearing

interest based gearing= PBIT/interest charges

years 2013 2012 2011 2010profit before interest and taxes 2174140 4823292 2411801 929662interest charges 784904 902503 1049141 659562interest based gearing 276.994384 534.4350102 229.8833998 140.9514193

2013 2012 2011 20100

100

200

300

400

500

600

IBG

Series1

IBG

The ratio has increased from 2010 to 2012 which means that company was able to pay off its interest very easily year by year however in 2013 the ratio has decreased which means that there are more interest charges as compare t previous years.

Activity Ratios:

9. inventory/stock turnover ratio

stock turnover ratio= (inventory/cost of sales)*365

years 2013 2012 2011 2010

Inventory 3083583 3494605 2637816 2089221cost of good sold 29717514 29848301 23230445 16552117

stock turnover ratio37.87355144 42.73378324 41.44573382 46.07058209

2013 2012 2011 20100

10

20

30

40

50

inevntrory turnover

Series1

Axis Title

The ratio is increasing from 2010 to 2013 which means that the control of a company on its inventory is improving year by year.

10. total assets turnover

Total assets turnover=sales/total sales

Years 2013 2012 2011 2010Sales 37890688 40168919 29859226 20944943total assests 24045553 22188685 16639184 12460064

total assests turnover1.575787756 1.810333465 1.79451264 1.680965924

2013 2012 2011 20101.45

1.51.55

1.61.65

1.71.75

1.81.85

Total assets turnover

Series1

Axis Title

From 2010 to 2012 the ratio is increasing which means with fewer assets it has a higher turnover ratio which tells it is a good company because it is using its assets efficiently. However in 2013 the ratio has turned very low which may mean company is not using its assets optimally.

11. trade receivable collection period

Trade receivables collection period= (trade receivables/credit sales)*365

Years 2013 2012 2011 2010trade receivables 153573 149074 87121 51879credit sales 692766 555489 597454 413353

trade receivables collection period

80.91353357 97.95335281 53.22445745 45.81032435

Increasing number of days in collection period from 2010 to 2012 may mean that company was having loose credit policy or there were no discounts in paying early which has improved in 2013.

12. trade payables payment period

trade payable payment period= (trade payables/credit purchases)*365

Years 2013 2012 2011 2010trade payables 1968715 1281398 1168250 866936credit purchases 1959606 2729743 2188861 978518

tarde payable payment period366.6966599 171.3385729 194.8096521 323.378456

2013 2012 2011 20100

20406080

100120

Collection period

Series1

Axis Title

2013 2012 2011 20100

100

200

300

400

Payment period

Series1

Axis Title

From 2010 to 2012 the payment period is decreasing which means that the company is easily able to pay off its credits however the ratio is high in 2013 which means may means that the company is having liquidity issues in paying off the credits.

13. dividend yieldDividend yield= (dividend per share/market price per share)*100

dividend yield        years 2013 2012 2011 2010dividend per share 0 0 0  market price per share 121.43 60.87 23.65  dividend yield 0 0 0  

14. dividend coverDividend cover= NPATAPD/paid dividend

Years 2013 2012 2011net profit after tax and preferred dividend 210960 2595173 890973paid and proposed dividends 0 0 0dividend cover      

15. earnings per share

earnings per share=net profit after tax and dividend/no of ordinary shares issued

years 2013 2012 2011 2010NPATPD 210960000 2595173000 890973000 175622000number of ordinary shares issued 766596075 761577575 751789855 700000000earning per share 0.27519055 3.40762791 1.185135705 0.250888571

6

2013 2012 2011 201001234

EPS

Series1

EPS

Earnings per share has increase from 2010 to 2012 which means that on every share year by year company was able to give more profits however in 2013 the profit have decreased but it doesn’t necessarily means that company is going in loss it may also means that it is using its profits somewhere else.

16. price/earnings ratioPrice/earnings ratio= market price per share/earning per share

years 2013 2012 2011market price per share 121.43 60.87 23.65

earnings per share0.275190556 3.40762791 1.18135705

price/earnings ratio441.2578751 17.86286578 20.01934978

2013 2012 20110

100

200

300

400

500

Price/earning ratio

Series1

Axis Title

The ratio is increasing from 2011 to 2013 which means that investors are anticipating higher growth in the future.

Z – Score:

Year 2013

current assets 8012194

current liabilities 4655356

total assets 24045553

A 0.139603277

Year 2013

retained earnings -9581

total assets 24045553

B -0.000398452

Year 2013

profit before interest and tax 2174140

total assets 24045553

C 0.09041755

Year 2013

No.of shares 766596075market price per share 121.43market value of preferred and ordinary shares 93087761387book value of total liabilities 13330343000D 6.98314825

Years 2013

Sales 37890688

total assets 24045553

E 1.575787756

Year 20131.2A 0.1675239331.4B -0.0005578333.3C 0.2983779160.6D 4.189888951.0E 1.575787756z-score 6.231020722

As z-score is above 2.99 therefore it means that there are n no chances of bankruptcy. It also tells that company is credit worthy.

Adjustment in Z-Score

Z= 1.2*0.16 + 1.4*0.00 + 3.3*0.0945 + 0.6*6.98 + 1.0*1.57

Z= 6.26

other operating expenses 2013 2012 2011 2010operating assets written off 55loss on biological assets 19175 5357exchange loss 778provision of culling of biological assets 15916biological assets written off 50533employee separation benefits 16600total 102224 0 778 5412

2013 2012 2011 2010

gain on sale on investment in subsidarty 78436amortization of deffered income 30 81exchange gain 3814 7349insurance claims 3543stated liability 38653total 3814 46002 78466 3624

Assets 2013 2012 2011 2010non current assestdeffered employee shares options compensation expenses

168865

advance against purchases of shares of engro food

863018

investment in subsidiries 427286Total 596151 863018current assetsderivative financial instruments 25787

provision of culling of biological assets 15916Total 15916 25787Total Assets 612067 863018 25787

Liabilities 2013 2012 2011 2010no current liabilitiesobligation under financial leases 1295 4714

differed liabilities 1,870 3462deferred income 9,410 17,390Total 9,410 17,390 3,165 8176current liabilityadjusted differed taxes 271429.8 271429.8 271429.8 271429.8Total 271429.8 271429.8 271429.8 271429.8Total Liabilities 280,840 288,820 277,760 287781.8

net profit after taxationyears 2013 2012 2011 2010profit before interest and taxes 2174140 4823292 2411801 929662interest charges 784904 902503 1049141 659562net profit before taxation 1389236 3920789 1362660 270100average taxation 271429.8 271429.8 271429.8 271429.8net profit after taxation 1117806.2 3649359.2 1091230.2 -1329.8

Profitability Ratios

Return on Capital Employedyears 2013 2012 2011 2010net operationg profit after taxes 210960 2595173 890973 175622

Add: operating expense 102224 0 778 5412Substarct: operating Income 3814 46002 78446 3624Adjusted net operating profit after taxes 309370 2549171 813305 177410shareholder equity 10715210 10054273 7236942 5124407long term liabilites 7126994 6023070 5610000 4625000substarct: non current liability 9410 17930 3165 8176adjusted non current libilities 7117584 6005140 5606835 4616824capital 17842204 16077343 12846942 9749407adjusted capital 17832794 16059413 12843777 9741231adjusted Return on Capital Employed 0.017348375 0.15873376 0.063322884 0.0182123

return on equityyears 2013 2012 2011 2010net operationg profit after taxes 210960 2595173 890973 175622Adjusted net operating profit after taxes 309370 2549171 813285 177410shareholder equity 10715210 10054273 7236942 5124407return on equity 1.968790159 25.8116425 12.31145697 3.4271673adjusted return on equity 0.028872043 0.25354106 0.112379649 0.0346206

net profit marginyears 2013 2012 2011 2010net operationg profit after taxes 210960 2595173 890973 175622Adjusted net operating profit after taxes 309370 2549171 813305 177410net sales 37890688 40168919 29859226 20944943net profit margin 0.556759487 6.46064934 2.983911907 0.8384936adjusted net profit margin 0.008164803 0.06346128 0.02723798 0.0084703

Gearing Ratios

Capital based gearingyears 2013 2012 2011 2010long term liabilites 7126994 6023070 5610000 4625000adjusted long term liabilities 7117584 6005140 5606835 4616824shareholder equity 10715210 10054273 7236942 5124407capital based gearing 39.94458308 37.4630932 43.66797951 47.438783adjusted capital based gearing 0.399128931 0.37393272 0.43654098 0.4739467

Income based Gearingyears 2013 2012 2011 2010profit before interest and taxes 2174140 4823292 2411801 929662Add: operating expense 102224 778 5412Substarct: operating Income 3814 46002 78466 3624adjusted profit before interest and taxes 2272550 4777290 2334113 931450interest charges 784904 902503 1049141 659562income based gearing 276.994384 534.43501 229.8833998 140.95142adjusted income based gearing 2.89532223 5.29337853 2.224784848 1.4122251

total assests turnoveryears 2013 2012 2011 2010sales 37890688 40168919 29859226 20944943total assests 24045553 22188685 16639184 12460064substract current assets 612067 863018 25787 0substract non current assets 596151 863018 0 0adjusted total assets 22837335 20462649 16613397 12460064total assests turnove 1.575787756 1.81033347 1.79451264 1.6809659adjusted total assets turnover rate 1.659155414 1.96303612 1.797298048 1.6809659

dividend coveryears 2013 2012 2011 2010net profit after tax and preferred dividend 210960 2595173 890973adjusted net profit after taxes 309370 2549171 813305 177410our dividents 0 0 0 0paid and proposed dividends 0 0 0dividend cover= NPATAPD/paid dividend

earning per shareyears 2013 2012 2011 2010NPATPD 210960000 2595173000 890973000 175622000adjusted NPATAPD 309370 2549171 813305 177410number of ordinary shares issued 766596075 761577575 751789855 700000000earning per share 0.275190556 3.40762791 1.185135705 0.2508886adjusted per share dividen 0.000403563 0.00334722 0.001081825 0.0002534