What’s the worst-hit industry of COVID recession? Well, there is no clear answer but the topic is still debatable. FrieslandCampina Engro Pakistan has reported something that has turned the debate upside down. What’s the most profitable industry during Coronavirus? FrieslandCampina Engro has reported Rs. 423.2 million profit in the 2nd quarter of 2020 ending June 30.
FrieslandCampina Engro Pakistan, previously known as Engro Foods, is one of the leading FMCG (Fast Moving Consumer Goods) companies specializing in dairy products. The company portfolio includes Olper’s, Omoré, and Tarang.
In the last few months, the consumption of FMCG products increased despite strict and smart lockdowns. The 423.3 million profit is much more valuable if compared to the last year’s loss of Rs322.2 million in the same quarter. The increase in consumption appears to be the obvious reason behind high profits but that’s just the tip of the iceberg.
According to a notice sent to Pakistan Stock Exchange by FrieslandCampina Engro, the value of EPS (Earnings per share) also surged in the second quarter. EPS stood at Rs. 0.55 while it was at a loss of Rs. 0.42 in the same quarter last year. As far as the revenue is concerned, it was reported to be Rs. 10.3 billion against last year’s Rs. 9.9 billion in the same quarter, which takes the revenue increase to 4.1 percent.
According to Sunny Kumar, Topline Securities’ analyst, the company became profitable as it enhanced profit margins from 14 percent to 19 percent during the 2nd quarter. “The increase in profit margins is due to the price hike at the end-consumer level”, said Kumar while talking to a local newspaper.
Devaluation of rupee against the dollar also plays a major role in determining profit margins. FrieslandCampina Engro imports raw material and adds the inflated price over the 24 months keeping in mind rupee devaluation. In the last quarter, there was no substantial devaluation of the rupee, which also allowed the company to adjust its profit margins through a price hike.
Budget cuts in the shape of distribution and marketing expenses accounted for Rs. 863 million. Last year in the same quarter marketing and distribution expense stood at 1.1 billion. That was also one of the factors contributing to the profit gains of the company. Lockdowns and low petrol prices played a major part in minimizing distribution and marketing expenses.
The 2nd quarter report of FrieslandCampina Engro is a case study worth pondering over. It shows how market dynamics, social behaviors, and global economic factors can impact a business even in times of an economic meltdown. Engro has a lot to learn from the positives to keep the company on track for future challenges to come.