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In the month of Ramazan, citrus fruit growers and makers of thirst-quenching squashes, syrups, fruit drinks and nectars are in a race to push as much inventory in the market as possible.

The competition is teething with the other two biggest players: Nestle and Shezan.

Mitchell’s Fruit Farms (MFFL) was the first to enter the market as far back as in 1933. The company started as ‘Indian Mildura Fruit Farms Limited’ in British India.

After independence it changed its name to Mitchell’s Fruit Farms Limited. The company maintains their head office in Lahore and the farms and factory are situated, in Renala Khurd, Okara, district of Punjab. The company may have enjoyed the early mover advantage at the time, but many bigger names have been able to wrest the larger share of the local market.

Analyst Yusra Beg at brokerage Intermarket Securities stated that Efoods, Nestle, National Foods and UPFL (which forms the Inter-market Securities food universe) posted CY15 earnings at Rs14.2bn, up 31pc YoY, led by sales volume growth (however, shaved off by price cuts/discounts) and margins pushed up by depressed commodity prices. Market watchers, however, wondered if profit growth would be sustainable due to unimpressive volume growth.

The company says it has invested in new equipment to enhance productivity through greater automation

The analyst mentioned: ‘“Mitchells’ Fruit Farms depicted a 61pc YoY earnings erosion in the year ended Sept 30, 2015, posting net profit after tax at Rs32m, translating into earnings per share at Rs4.11, having extended price discounts amid stiff competition. Congestion of trade pipelines in semi-urban areas and shelf space competition in modern trade distribution remained key contributors to the decline in sales; down 8pc YoY at Rs1.74bn’.

In their report for the year, directors conceded: “Congestion of trade pipelines in semi-urban areas, and a fierce fight for shelf space in the modern trade of bigger towns/cities, created immense difficulties for our distributors”. Additionally, strong discounts and lower prices of competitors at the trade level impacted the sales of premium priced grocery products.

Directors said they had worked out a strategy to respond to ongoing competitive pressures. A market watcher said the company has been able to forge ahead in ‘sugar confectioneries, chocolates and Sugar-free products’.

Paid-up capital of MFF stands at Rs78.8m. Directors, CEO and their spouse and minor children hold 4.59m shares or 58.2pc of the company equity. Other major investors in the company are modarabas and mutual funds with 10.35m shares and insurance companies 3.77m shares. General public has 2.05m shares equivalent to 26.02pc stake in the company. The share of the par value of Rs10 in MFFL closed at Rs296 at the stock market on Wednesday, giving the company market capitalisation at Rs23.3bn.

But despite a quarter of the company stock held by individuals, the share in MFFL is not briskly traded as investors hold on to the stock as long-term investment. Given the low amount of shares traded at the market, most brokerage houses do not follow the company as it is of scant interest to foreign portfolio investment managers.

The company says it has invested in new equipment to enhance productivity through greater automation. Extending its existing product line of fruit drinks, Mitchell’s has introduced ‘Fruit Punch’, a combination of fruits in a single drink.

Yet the directors have not mentioned the amount of investment in the expansion and new launches. The company seems comfortable with cash flows. With substantial sum of Rs28.3m in cash and bank balances, the company has little need to borrow from banks.

The MFFL reserves amounted to Rs9.6m and unappropriated profit stood at Rs491.6m, taking the aggregate shareholders equity at Rs580m. Total assets of the company (balance sheet footing) stood at Rs1.426bn.

For the latest quarter ended Dec 31, 2015, MFFL posted profit after tax at Rs7.4m on sales that stood at Rs449m. The company chairman S.M.Mohsin and CEO Mujeeb Rashid, who jointly signed the directors’ report told shareholders that the company’s net sales of Rs.449m during the quarter was an 11pc improvement over the corresponding period of last year, which he claimed to be the result of ‘Efforts made by the sales and distribution system to improve trade penetration’. Export sales of the company also showed growth of 18pc.

The sector watchers assert that overall, the food industry betrays one of the fastest growth among manufacturing industries where more than 500 units are currently engaged in the manufacture of food and beverages, including both in the organised and unorganised sectors. Entrepreneurs continue to be attracted to set up new and innovative units; the latest craze being ‘the halal meet processing’. “Despite 15 players already in the market, newer companies continue to jostle for their place in the ‘halal meat processing and exporting’ business”, says Zubair Ghulam Hussain, head of equity sales at Foundation Securities.

Published in Dawn, Business & Finance weekly, July 4th, 2016