Unity foods used to be Taha Spinning Mills limited that suspended its yarn manufacturing in 2008 as a result of heavy losses and liquidity crunch. The bankers of the company did not renew credit lines and filed recovery suit. In 2012, its mills closed down completely. Due to pending issues in court, machinery, land and building sales were stuck and its revival plan in the textile sector could not be implemented due to prolonged litigation.
2013 saw the finalized sale of land and building for Rs 124 million. Though there was some attempt to set up a small spinning unit in the area with basic industrial facilities, meagre availability of funds prevented the plan from coming to fruition.
After four years of suspended manufacturing, sale of assets, and thwarted plans to continue in the textile sector, the company decided to change business dimensions and enter the fast moving consumer goods segment. This initiative led to the takeover process in 2016 which was completed in May 2017 and the name was changed officially to Unity Foods Limited in October 2017. The new company was set up for various food and ancillary businesses with the establishment of edible oil extraction plant, edible oil sales operations, and plans to introduce a new brand of edible cooking oil in the local market.
In June 2017, the Board of Directors announced a rights issue to raise Rs 1.65 billion for the acquisition of a solvent extraction plant, an oil refinery and, other ancillary assets and purchase of land and office building. By end of last calendar year, the new company has multi-seed processing facility and a solvent plant with the capacity to crush 450 tons of oilseeds per day and 300 tons of palletizing feed products per day. It has also acquired an edible oil refinery with a capacity of 150 tons per day.
Industry overview
Pakistan is one of the top edible oil importing countries in the world with a per capita consumption of about 17kgs. Total consumption of oils and fats was about 4.41 million tons in 2017, as per Pakistan Edible Oil Conference (PEOC) held earlier this year. Palm oil consists of about 94 percent of edible imports.
In recent years, there has been a significant increase in soybean oil imports. Soybean is also used in the poultry sector as vegetable protein for feed. The crushing of soybean produces oil which is absorbed by the edible oil market.
There has been growing awareness about the health benefits of edible oil compared to other cooking fats. Production numbers of ghee have declined significantly on a year on year basis since Punjab Food Authority's ban on manufacturing, sale and purchase of vanaspati. Still, ghee is in high depending with production in FY17 more than three times that of cooking oil production.
Pakistan has a small oilseed crop which includes cottonseed, rapeseed/mustard, sunflower and canola. Therefore the edible oil sector almost entirely depends on imports.
9MFY18
In the third quarter of the current financial year, Unity Foods commenced operations. In less than 2 months of operations, it was able to record a top line of Rs 617 million of which Rs 416 million were export sales. Bottom line was Rs 79 million which is commendable for a company that has been operating only for 53 days. This translated to PAT of Rs 31 million for 9MFY18.
The bulk of its sales constitutes of different oil states and their products. However, United also received international orders for meals.
Currently, the gross margin stands at 17 percent for the period and is expected to increase as the company intends to increase refined oil seeds which are further down the value chain and hence more profitable. Net profit margin was at 13 percent.
Future outlook
Unity Foods Limited opted to not buy or set up brand new plants. Instead, it acquired existing plants since the cost of installing and commissioning a brand new high-end solvent plant and oil refinery was much higher and would also have led to a gestation period of up to 3 years to allow commencement of commercial operations.
Resultantly, it bought existing plant and infrastructure for about Rs 1.1 billion from Ayesha Solvent Plant (Pvt.) Limited, an associate company and Unity became operational within few months. Though this may have been cost effective in the short run, it is possible in the long run lack of latest technology and outdated plant and machinery may affect the company's efficiency and thereby, profitability in the medium and long run.
Another challenge that the company may face is volatility of exchange rates since the bulk of its raw materials constitute of imports. On the flip side, since a high proportion of its sales consist of exports, currency devaluation will in fact, work in the company's favour.
A factor in United Food's favour is that the demand for edible oil is high and rising as health awareness grows. PEOC predicts that edible oil consumption is expected to rise by three to five percent on a yearly basis, indicating a rising market for United Foods.
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Unity Foods
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Rs. mn 9MFY18
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Sales 617
Cost of sales -515
Gross profit 102
Selling and distribution expenses 21
Administration expenses 21
Operating profit 61
Other income 12
Finance cost 3
Tax 9
Proft for the period 79
EPS 0.47
Gross profit margin 17%
Net profit margin 13%
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Source: Company accounts
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Pattern of shareholding (as at June 20, 2017)
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Category Number of shares %
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Mutual funds 1,000 0.02
CFO, CEO, directors, their spouses and minor children 2,240,100 55.28
Joint stock companies 336,301 8.34
Banks, DFI, Non-banking Finance companies, 1,500 0.04
Insurance companies, Takaful, Modarabas, and Pension funds
Individuals and others 1,471,099 36.32
Shareholders holding 5% or more voting rights in the company
Muhammad Farrukh Amin Godial 1,211,950 29.92
Shaikh Ali Baakza 1,022,150 25.24
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Source: Company accounts