Strategic Management

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Disclaimer: This report has been prepared by Standard Capital Securities (Pvt) Ltd and is provided for information purposes only. The information and data on which this report is based are obtained from sources which we believe to be reliable but we do not guarantee that it is accurate or complete. Standard Capital Securities (Pvt) Ltd accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. Investors are advised to take professional advice before making investments and Standard Capital Securities (Pvt) Ltd does not take any responsibility and shall not be held liable for undue reliance on this report. This report may not be reproduced, distributed or published by any recipient for any purpose. Standard Capital Securities (Pvt) Ltd

  
        
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TRIGGERS….LONG TERM INVESTMENT PROSPECTS
¾ The company is planning on being the #2 player in juices and nectar segment within the next 5 years, after Nestle;
¾ Planning on expanding in the growing milk powder and infant nutrition category (constituting 55% and 18% respectively of total market share) which will enable Engro Foods to attain major portion of market share;

¾ It has strategic advantage in terms of raw material supply, utilities, manpower and warehousing as the Ice cream plant has been set up in the same facility as the Dairy plant in Sahiwal;
¾ Engro Foods is also making efforts to export rice and thereby earn revenues in foreign currency;
¾ Engro Foods has already started incurring capital expenditure for future expansions; ¾ It is getting listed in order to raise finance for its future projects; ¾ Some expansions are already being completed in CY11 such as Rice Plant capacity expansion, Ultra Heat Treatment (UHT) machine imports already done and commercial production expected to commence in July CY11.  

ENGRO FOOD’S HISTORY AND ITS PRESENT….
Engro Foods Limited was formed as a wholly owned subsidiary of Engro Corporation (ENGRO) in 2005. It started its operations in 2006 and since then has launched a number of products which have yielded immense margins and flourished largely in the food industry. Listing on KSE & LSE

Engro Foods is now on its way to becoming enlisted on the Karachi Stock Exchange and Lahore Stock Exchange and is offering 27mn shares at an offer price of Rs25/sh (incl. Rs15/sh premium). The public subscription will take place from July 5 to July 7, 2011 in order to raise an amount of Rs675mn for financing future project. REVENUE GENERATING SEGMENTS….

Dairy and Juices
Engro Foods main revenue generating area is the dairy segment which grew by 27% in CY10 with a sale of 310mn litres. One of the aspects of this segment is the ever increasing milk prices which will continue to give huge margins to Engro Foods. VALUE PROPOSITION

Engro Foods Ltd. appears value proposition given sponsors approach of investing in home‐ grown businesses which is being a domain of MNCs since Pakistan’s inception.  Hence we have come up with a DCF price of Rs141.4/sh & CY11 EPS of Re0.97/sh. We see earnings growth going forward in CY12 & CY13. Subscribe

Analyst:
Ms. Gulshan D
Ferozepurwalla*
research@scstrade.com
+92‐21‐111 111 721

Engro Foods: Value proposition ……TP Rs 141.4/sh                        Subscribe    July 2, 2011
    Pakistan Research
             Food | IPO note
Engro
Foods
IPO note
   
IPO price Rs 25/sh
Fair price matrix
Growth Req. rate of Return
###### 20% 21%
3% 133.4 125.5
4% 141.8 133.0
5% 151.5 141.4
6% 162.5 151.0
7% 175.3 162.1
8% 190.3 174.9
*ACCA (affiliate)     
Disclaimer: This report has been prepared by Standard Capital Securities (Pvt) Ltd and is provided for information purposes only. The information and data on which this report is based are obtained from sources which we believe to be reliable but we do not guarantee that it is accurate or complete. Standard Capital Securities (Pvt) Ltd accepts no...
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