On June 15, Engro Foods notified the Karachi Stock Exchange that it had appointed Marco L Spits as director on the company’s board with effect from June 11, 2015.
The notice caused quite a buzz in the market, which speculated the local foods giant was selling some stake (more than 10%) to a foreign buyer in an attempt to restructure the company and venture into baby foods business or some other new product.
As the market continued to deliberate, the company saw its share price increase 3% from Rs148.5 at the start of business on June 16 to Rs153 at the close of market the same day with 6.7 million shares changing hands, the highest turnover of the month till June 26.
The stock kept trading around Rs150 for a couple of days before coming down to Rs142.5 on Friday as speculations died down.
“The company has not sold any stakes to foreign buyers,” Chief Executive Officer Sarfaraz A Rehman then told The Express Tribune, adding the speculations might have emerged after the appointment of Spits who would be serving as an independent director.
According to rules, one-third of the company’s board of directors should be independent.
Though the company insisted it had not sold any stakes to a foreign buyer, there is at least some indication that the subsidiary of Pakistan’s largest private-sector conglomerate, Engro Corp, will do so going forward.
Read: 'The right time to leave': Engro Foods' founding CEO steps down
“There is still a lot of room to grow within the dairy sector – beverages, yogurt and powders for example,” Rehman had said in an interview last year, indicating they would next focus on the milk powder business.
The company also set up a plant for milk powder earlier in 2014.
According to Rehman, who has already announced that he will step down, there is a lot of untapped potential in the milk powder business, which includes baby food, such as powdered milk – infant formula and follow-on milk segment is one example indicating this potential.
Nestle Pakistan’s brands Lactogen 1, which caters to the nutritional requirements of infants of up to six months and Lactogen 2, a follow-up formula milk for children aged between six months and one year are the only domestically produced brands in their respective categories, according to a report of the Competition Commission of Pakistan.
Even if imported brands are included, the market share of these brands is 72.8%, based on Nielsen Retail Audit February 2015.
The Engro Foods chief said they were not considering selling stakes to a foreign buyer, but did not rule out the possibility for the future.
“This may take place in the long run as the company would eventually venture into baby foods segment,” Rehman said.
Baby food business
The baby foods segment requires international expertise and Engro Foods cannot do it alone or without involving an international company so it might sell some stake to a foreign company with expertise in this segment, according to Rehman. “But I don’t see this happening in the next five years.”
Read: Wrapping up: Engro Foods closes Mabrook retail shops
The company would like to launch its own brand of baby milk powder and it will more likely do it jointly with some international player because it takes about 60 to 70 years of experience to develop expertise in such a product, he said, adding they would first focus on the milk powder and then move to baby foods and nutritional foods.
“We have taken a foreign director on our board with 40 years of experience in the foods industry, which is good for the company,” the CEO said.
Spits, who has plenty of experience in dairy and baby foods, has also served as a significant experience in nutritional foods and is likely to be involved in the company’s baby foods venture.
His appointment at this point in time can be an indication that the long-term may not be far away.
The writer is a staff correspondent
Published in The Express Tribune, June 29th, 2015.
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