FOOD processing companies have outperformed other sectors in about the last year and a half, represented by the consistent growth in their sales and earnings, as well as by the upward spiral in stock prices of listed companies.

National Foods Limited (NFL), which started out in 1970 as a ‘spice company,’ now calls itself ‘the fastest growing multinational food company’. It is difficult to independently verify that claim, since most of its big peers like Shan Foods, Habib and others are unlisted and therefore their financial figures are hidden from the public view.

“Food processing companies, due to the very nature of their business, are highly secretive,” confided a market watcher. He added that the companies would be loathe to disclose the sales and profit of each segment or product even if they report their overall turnover and earnings.

Yet, if NFL’s sales jumped to the current Rs13.5bn from Rs200m in 1993 — representing an yearly growth of 20-30pc over the past 20 years, other spice-to-ketchup producers could scarcely be far behind. Such mouth-watering growth is hard to find in most other sectors.

The paid-up capital of NFL stands at Rs518m, with a free-float of around 13m shares and unappropriated profit providing a cushion of Rs2bn. At the end of September, it had a substantial Rs855m in cash on its balance sheet, possibly to meet working capital requirements as well as for new projects. Its assets were valued at Rs5.5bn.

The market is watching the company’s efforts to seek greener pastures in foreign markets, besides penetrating into the largely untapped local rural areas

The cash flow statement showed ‘cash and cash equivalents at the end of period’ of Rs325m, against negative cash flow of Rs439m in the same period last year. A big portion of Rs105m was contributed by sale proceeds of open ended mutual fund units.

After seeking shareholders’ approval on October 22, the company is in the process of splitting each of its Rs10 par value share into two shares of Rs5 each, with no change in rights and privileges.

“Share-split is a common practice in developed markets, but unusual in Pakistan,” commented Sajid Bhanji, a former senior analyst at Arif Habib Ltd. The authorised capital of the company would be subdivided from Rs75m worth of Rs10 stock to Rs150m worth of Rs5 shares, while 51.80m paid-up shares of Rs10 each would be subdivided into 82.885m shares of Rs5 each.

“Interestingly, for the 51.80m paid-up shares, stockholders paid only Rs12.6m for allotment of 1.26m shares, while 50.5m shares — valued at Rs505.4m — were issued by the company, from time to time, as bonus shares,” a stock dealer pointed out.

NFL’s major shareholder is the ‘Associated Textile Consultants (Pvt) Limited,’ which holds 17.2m shares or 33.16pc of the company’s equity.

For the quarter ending September 30, National Foods’ sales rose to Rs3.041bn, with the overseas market contributing Rs229m.

The company’s CEO, Abrar Hasan, stated in his review that “We are expanding our operations in overseas markets, as ‘white spices’ offer a huge business potential for NFL. The company is also doing contract manufacturing of ready-to-consume meals in Canada in order to help make our supply chain even more nimble to market needs”.

For the year ending June 30, the company’s sales stood at Rs9.72bn. While Mr Hasan is travelling abroad, other company officials avoided answering this writer’s queries.

NFL’s subsidiary — National Foods DMCC, registered in Dubail — has been operating in the UAE since March 2013. The accounts show NFL holds 1,188 shares of AED1,000 each in the subsidiary. National Foods DMCC in turn has two wholly owned subsidiaries — National Epicure Inc., incorporated in Canada, and National Foods Pakistan (UK), set up on May 29, 2013. NFL’s investments stood at Rs364m.

The company’s chairman A.Majeed, wrote in his report that “Our strong sales growth of 22.9pc has come from an aggressive in multi-dimensional focus on brand-building and customer interception activities. This was despite the volatility of our operational environment, magnified by the recent floods and rising material costs”.

He identified main contribution from key categories like ‘Recipe Masala,’ pickles and ketchups. NFL produces 250 different products that are marketed in Pakistan and exported to 35 countries worldwide.

Standard Capital Securities analyst Rjesh Kumar Maheshwari acknowledged that the company is a market leader in pickles, while other products like ketchup, recipe mix, ‘Fruitily’ and salt etc are also doing well.

The market, and particularly its competitors, are watching the company’s efforts to seek greener pastures in foreign markets, besides penetrating into the largely untapped local rural areas. Hasan noted that the largest segment, or 60pc, of the country’s population resides in rural areas.

These areas are, however, infested by counterfeit products. In order to penetrate there, NFL launched a campaign in rural areas with the theme ‘Asli te Khalis’.

The company’s CEO asserts that “NFL envisions being a Rs50bn food company by 2020 by focusing on top brands, growing customer base and aggressive international expansion”.

The National Food stocks, which traded at around Rs386 at this time last year, has currently scaled to Rs712, giving shareholders an enviable return of 84pc in one year. Other listed food companies like Unilever Pakistan Foods, Nestle Pakistan and Michell’s Fruit Farms have seen equally huge investor interest and big spirals in their stock prices.

Published in Dawn, Economic & Business, December 1st , 2014