FCEPL has reported 4QCY21 loss after tax of PKR155mn (LPS: PKR0.20), similar to a loss of PKR145mn (EPS: PKR0.19) SPLY. We attribute higher distribution costs and seasonally higher raw material costs as the primary contributors, largely offsetting strong sales delivery (PKR13bn, up 14% yoy).

CY21 NPAT has clocked in at PKR1.8bn (EPS: PKR2.35), up10x yoy due to a strengthening product line and better margins.

FCEPL continues to display strength in sales – rising 14% yoy to PKR13.4bn. This is led by strong volumetric growth in all categories – particularly Olpers and new products, complemented by a narrowing delta vs. loose milk.

Gross margins have improved yoy to 11.3% in 4Q vs. 9.2% SPLY – although reporting a sharp sequential dip (vs. 15.9% in 3Q) due to higher costs during lean season.

Distribution and marketing expenses have increased sharply (up 47% yoy) rising above the quarterly run rate of c.PKR1.0bn/qtr in the previous nine months. Distribution expenses as % of sales have jumped to c.10% in 4Q vs. 7.5% SPLY and c.8.5% in 9MCY21.

While sales momentum remains on track, cost escalation has dragged the bottomline (clarity awaited on this front). Receipt of tax refunds under the zero rating regime should lead to improvement however, these are likely to come at a slow pace. A rising price gap between loose and packaged milk players should provide room to increase prices in the longer run. We have a Target Price of PKR111/sh on the scrip.

Courtesy – Intermarket Securities Limited.