JCR-VIS Credit Rating Company Limited
Rating Report
Technical Partner – IIRA, Bahrain | JV Partner – CRISL, Bangladesh
RATING REPORT
Engro Foods Limited
REPORT DATE:
December 14, 2015
RATING DETAILS
RATING ANALYSTS:
Rating Category
Faryal Ahmed
TFC
Faryal.faheem@jcrvis.com.pk
Rating Date
Moiz Badshah
Rating Outlook
Latest Rating
Rating
Previous Rating
Rating
A+
A+
Dec’14, 2015
Dec’ 12, 2014
Stable
Stable
Moiz.badshah@jcrvis.com.pk
COMPANY INFORMATION
Incorporated in 2006
Public Listed Company
Key Shareholders (with stake 5% or more):
Engro Corporation Limited – 87.06%
Financial Institutions – 5.05%
External auditors: A.F. Ferguson & Co. Chartered
Accountants
Chairman of the Board: Abdul Samad Dawood
Chief Executive Officer: Babar Sultan
APPLICABLE METHODOLOGY(IES)
JCR-VIS Entity Rating Criteria: Industrial Corporates (October 2003)
Rating the Issue (September 2014)
JCR-VIS Credit Rating Company Limited
Rating Report
Technical Partner – IIRA, Bahrain | JV Partner – CRISL, Bangladesh
Engro Foods Limited
OVERVIEW OF THE
INSTITUTION
EFL
was
incorporated in as a
wholly
owned
subsidiary of Engro
Corporation Limited
in 2006, but was later
partially listed on the
Karachi, Lahore, and
Islamabad
stock
exchanges.
The
company operates in
the Consumer Good
sector; primarily in
dairy and ice cream /
frozen
desserts
products.
RATING RATIONALE
Engro Foods Limited (EFL) is a subsidiary entity of Engro Corporation Limited, operating
in the consumer goods sector. EFL through innovative marketing, branding and
competitive pricing has acquired substantial market shares in the domestic dairy, beverage,
ice cream & desserts market. The company has developed key flagship brands such as
Olper’s milk, Tarang tea whitener and Omore ice cream.
The top line of the company has shown significant improvement as compared to the
preceding year with gross sales reaching Rs. 43b for 2014. The Q-o-Q trend of gross
margins during 2015 has followed a declining trend as witnessed during 2014, though
higher as compared to the corresponding period. During 3Q15, increase in international
whole milk powder prices placed pressure on margins. However smart inventory
management coupled with growth in gross sales improved 9M15 gross margins to 25% as
compared to the period before (9M14: 18.53%). This growth impacted the company’s
internal cash generation which experienced a substantial jump to Rs. 4.4b for 9M15 (9M14:
Rs. 1.1b). This was reflected in the bottom line of the company whose profit before tax
followed a similar trend (9M15: Rs. 3.5b, 9M14: Loss of Rs. 0.16b). EFL’s debt servicing
coverage has reached a healthy level with growth in funds from operations and with final
impairment taken on EF Netherlands (subsidiary); the company’s bottom line is expected
to improve.
Improvement in internal cash generation has reduced the company’s need to make use of
running finance facilities. This was shown with a decrease in total debt to Rs. 7.6b at end9M15 of which 23% was short term in nature. EFL had reversed their position on running
finance facilities in order to meet working capital requirements, which also received support
from internal cash generation.
The company has taken on capital expenditures in improving power facilities at their North
plant in Sahiwal. This includes launch of a 10+ MW HFO (Heavy Fuel Oil) Power Plant
and the use of two third-party Biomass energy plants, to alleviate the plant’s dependency on
gas for steam. Further expenses have been made in EFL’s vital marketing campaign to
create awareness and help maintain product market share. With long term financing
principal repayments cumulatively amounting to Rs. 4.88b falling due in 2016 and 2017,
these years are significantly crucial for the company. The company will need to be cautious
of their market presence and margins going forward, focusing on their ability to meet
repayments. Further emphasis has been laid on the Board’s selection of a new Chief
Executive Officer who can lead the company through this period.
EFL issued a Sukuk in July 2009 amounting to Rs. 950m with a tenor of 8 years. The first
principal repayment was completed in July 2015 (Rs. 71.25m) while two are due in 2016
(accumulating to Rs. 475m) and the final during 2017 amounting to Rs. 403.75m.
JCR-VIS Credit Rating Company Limited
Technical Partner – IIRA, Bahrain | JV Partner – CRISL, Bangladesh
Engro Foods Limited
Appendix II
FINANCIAL SUMMARY
(amounts in PKR millions)
BALANCE SHEET
Fixed Assets (Property, plant and equipment)
SEPT 30, 2015
DEC 31, 2014
DEC 31, 2013
14,336.24
15,021.52
14,504.77
4,901.18
93.20
276.20
28,118.88
4,128.59
5,829.22
1,752.16
14,469.92
3,697.79
95.96
196.90
25,699.51
3,519.18
7,082.59
2,331.89
11,577.62
597.29
3,083.58
153.57
557.27
24,045.56
3,623.35
8,159.00
10,715.21
INCOME STATEMENT
Net Sales
Gross Profit
Operating Profit
Profit After Tax
SEPT 30, 2015
37,664.09
9,413.24
4,262.45
2,601.13
DEC 31, 2014
43,027.38
8,101.25
2,126.50
888.83
DEC 31, 2013
37,890.69
8,143.10
2,189.51
210.96
RATIO ANALYSIS
Gross Margin (%)
Net Working Capital
FFO to Total Debt (x)
FFO to Long Term Debt (x)
Debt Servicing Coverage Ratio (x)
ROAA (%)
ROAE (%)
SEPT 30, 2015
24.99%
3,576.65
0.78
1.01
2.61
12.35%
26.53%
DEC 31, 2014
18.83%
2,028.68
0.20
0.27
1.40
3.57%
7.97%
DEC 31, 2013
21.57%
3,356.84
0.29
0.29
1.26
0.91%
2.03%
Investments
Stock-in-Trade
Trade Debts
Cash & Bank Balances
Total Assets
Trade and Other Payables
Long Term Debt (*incl. current maturity)
Short Term Debt
Total Equity
JCR-VIS Credit Rating Company Limited
Technical Partner – IIRA, Bahrain | JV Partner – CRISL, Bangladesh
ISSUE/ISSUER RATING SCALE & DEFINITIONS
Appendix II
JCR-VIS Credit Rating Company Limited
Technical Partner – IIRA, Bahrain | JV Partner – CRISL, Bangladesh
REGULATORY DISCLOSURES
Name of Rated Entity
Sector
Type of Relationship
Purpose of Rating
Rating History
Appendix III
Engro Foods Limited
Consumer Goods
Solicited
TFC rating
Rating Date
12/14/2015
12/31/2014
1/21/2013
4/26/2011
1/7/2010
1/6/2009
8/13/2008
Instrument Structure
Medium
to
Short Rating
Long Term Term Outlook
RATING TYPE: TFC
A+
Stable
A+
Stable
A+
Stable
A
Stable
APositive
AStable
AStable
Rating Action
Reaffirmed
Reaffirmed
Upgrade
Upgrade
Maintained
Final
Preliminary
Instrument was issued in July 2009 with certificates amounting to Rs. 950m at a
mark-up rate of 6M-KIBOR plus 0.69% and a tenor of 8 years. The issue is secured
by a first pari passu floating charge over all present and future fixed assets of the
company with a 20% margin. Principal repayments are to be made in four semiannual unequal installments which began from July 2015.
Statement by the Rating JCR-VIS, the analysts involved in the rating process and members of its rating
Team
committee do not have any conflict of interest relating to the credit rating(s)
mentioned herein. This rating is an opinion on credit quality only and is not a
recommendation to buy or sell any securities.
Probability of Default
JCR-VIS’ ratings opinions express ordinal ranking of risk, from strongest to
weakest, within a universe of credit risk. Ratings are not intended as guarantees
of credit quality or as exact measures of the probability that a particular issuer or
particular debt issue will default.
Disclaimer
Information herein was obtained from sources believed to be accurate and
reliable; however, JCR-VIS does not guarantee the accuracy, adequacy or
completeness of any information and is not responsible for any errors or
omissions or for the results obtained from the use of such information. JCR-VIS is
not an NRSRO and its ratings are not NRSRO credit ratings. Copyright 2015 JCR-VIS
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