Result review: Consumer goods companies’ profits surge 44%

KARACHI:

Filled up fridges and stocked up kitchen shelves have bumped up profits of fast moving consumer goods (FMCG) by 44 per cent in the first half of 2011.

The consumer goods sector is growing at a rapid pace, with Nestle, Unilever, Unilever Foods, Engro Foods, Rafhan Maize and National Foods continuing to shine.

The impressive growth was mainly on the back of increased volumetric growth, 15.7% jump in food prices, double-digit increase in inflation, according to an InvestCap research note.

Sales rose by 28% to Rs69.7 billion in the first six months of 2011 that trickled down and kept profits strong.

Natural calamities hitting the country including last year floods increased consumption of instant food products, beverages as well as toiletries, adds the note.

However, gross margins declined by 70 basis points to 27.4% during first half of 2011 due to escalating raw material prices.

Engro Foods was listed and joined the party while posting a profit of Rs216 million against a loss of Rs177 million in the same period last year.

The FMCG sector outperformed the benchmark KSE-100 index as it provided a solid return of 71% compared with KSE-100’s return of only 2.06% during the first six months of 2011. Nestle was the top performer once again as its value appreciated by a mammoth 139% followed by Unilever Pakistan Foods with 34%, Rafhan Maize 23% and Unilever Pakistan 20%.

However, increasing energy shortages, higher input prices and poor law & order situation has threatened the overall equity market growth and investor interest, says the note.

Ramadan is known to boost food demand every year, thus July to August is expected to be another good quarter for almost all the FMCGs.

Moreover, flood in Sindh will also escalate demand further while continued double-digit inflation will support sales.

Published in The Express Tribune, September 24^th,  2011.