morning shout

8 April 2009
KASB Research
research@kasb.com
(9221) 111-222-000

Pakistan Daily Notes

Shagufta I. Khurram
Engro launches Omore ice cream Shagufta.irshad@kasb.com
Ph. No. (9221) 263 5501
ƒ Engro Foods has successfully launched its ice cream brand; Omore; from Lahore
and a few other adjacent cities from April 6th.
ƒ Pakistan has a branded ice cream market of ~70mn liters or PRs8bn. Capturing 5-
10% market share in the initial phase could result in incremental revenue of
Engro stock Perf: Pre & Post Olpers Launch
PRs400-800mn for EFL. Earnings impact for EFL will remain muted in the near term
due to heavy promotional expenditure and investment capex on cold storage. 200
9.7% up 1wk pre- 4.4% up 1wk post-launch

ƒ Unilever Walls currently dominates the ice cream market with a 60% market share
175
launch
and the second largest cold chain network among all FMCGs. To compete with
Walls, EFL needs to focus on investment in cold chain and aggressive marketing.
150
Engro Foods launches ice cream
Engro Foods (EFL), the 100%-owned subsidiary of Engro Chemical, has launched its ice cream 125
brand - OMORE - from Lahore (limited launch in first phase) on 6th April which has received an

06-Mar-06

09-Mar-06

14-Mar-06

17-Mar-06

22-Mar-06

28-Mar-06

31-Mar-06
encouraging response initially. Pakistan's ice cream market size is ~PRs8bn hence a 5-10%
market share will result in incremental revenue of PRs400-800mn for EFL. However benefit to
bottom line will remain muted (at least for two years) due to heavy promotional expenditure and Source: KSE
investment capex on cold storage. This has been incorporated into our earnings forecast for EFL.
The key highlights of the launch were: Engro stock Perf: Pre Omore Launch
ƒ EFL has started off with 1,000 freezers and is planning to expand to 7,000-8,000 freezers. 175
ƒ EFL is planning to directly distribute to retail outlets through its existing link for dairy products. 9% up 1wk pre-launch
Finished products will be shifted from factory to warehouse through third party distributors, 150
which will eventually be picked up by EFL distributors to supply to retail outlets.
125
ƒ EFL is aiming to reach the number two position in the branded ice cream segment, which is
currently shared by a few small players including Igloo, Hico, and Yummy. EFL is also looking
100
at the unbranded ice cream segment as a potential target market.
20-Mar-09

25-Mar-09

27-Mar-09

31-Mar-09

02-Apr-09

06-Apr-09
ƒ Unlike Walls, whose ice creams are made up of mainly vegetable fats, EFL would be using
pure milk powder and cream available in house from Olpers.
ƒ EFL plans to target the broad-based market that includes the masses and a few products for Source: KSE
the elite or niche category.
ƒ EFL ice cream plant was completed within the budgeted capex of PRs1.5bn.
OMORE – nation-wide launch requires more cold chains
The proximity to the ice cream plant (Sahiwal, Punjab province) and limited cold storage network in
the early phase were the reasons why the brand was launched only from Lahore and a few
adjacent cities. The cities also mark a high consumption of dairy products. A nation-wide launch of
the product will require extensive investment in cold storage networks across Pakistan or at least in
major cities including Karachi to ensure product availability before it is advertised. A good response
& product acceptability in Lahore will remain the key to expansion, which can be replicated (or
modified if required) in other cities, in our view.
Investment in cold chain & marketing – the key to success
Pakistan has a market size of ~70mn liters or PRs8bn of branded ice cream while combined with
the unbranded sector; the size should be double that amount. Unilever, the only nation-wide seller,
dominates the branded ice cream segment with ~60% market share. It has recently doubled its
capacity to 77mn liters, out of which 39mn liters were produced in 2008. Unilever ice creams have
witnessed 15% volumetric growth and 23% CAGR in revenues over the past five years (2003-08).
To compete with the ice cream giant, EFL needs to extensively work on two grounds: (1) strong
cold storage network and (2) aggressive consumer marketing.

Refer to important disclosures on page 2 page1

 morning shout

KSE-100 Intra-day Movement

Morning News
7692
High 7688.82
` 3% further increase in electricity tariffs targeted by Jun-09 (IMF LOI) 7666
In its Mar-09 Letter of Intent (LOI) encompassing a review of Pakistan's performance post entry
7639
into the IMF program, the IMF and government of Pakistan have agreed to raise consumer power
tariffs by a further 3% by Jun-09 taking the IMF program-to-date hike in tariffs to 4%. Recall that 7613
average consumer electricity tariff was raised by 1% in Feb-09 following an 18% hike in Nov-08. 7586
The LOI reiterates the elimination of electricity subsidy by Jun-09 and also highlights that the
7560
process of monthly tariff adjustment (based on actual fuel cost for the month) will continue going Low 7537.01
forward. Post Feb-09 hike, we estimate average consumer power tariff at PRs6.54/kWh though we 7533
highlight that Mar-09 monthly adjustment was reported as an increase of PRs0.33-1.96/kWh for the 9:31 AM 10:44 AM 11:58 AM 1:10 PM 2:24 PM
eight Wapda DISCOs. We estimate FY09E average blended fuel cost at PRs7.39/kWh and FY10E
at PRs7.17/kWh. Source: KSE

Index Data & Volume Leaders

Technical View Vol.
Aiyaz M. Hassan Close % Chg US$mn
aiyaz.hassan@kasb.com KSE30 8,279.35 1.33% 129.24
KSE100 7,635.88 1.56% 147.02
KSE All
Buy Between 7,479 Points And 7,595 Points; First Resistance 7,725 Points, Second Share 5,509.85 1.68% 160.21
Resistance 7,819 Points NBP 103.24 4.48% 18.00
ENGRO 156.87 2.14% 14.93
The index opened on a positive note and remained strong through most of the day, managing to
close well into the green. However volatility was high and intraday profit-taking was evident. MCB 165.18 4.40% 12.80
Volume registered an improvement of 25.32% and stood at a whopping 478.94 mln. A dissection of LUCK 60.34 0.55% 8.93
the volume reveals that the top three volume leaders were from the sideboard totaling 107.61 mln. OGDC 79.68 -1.35% 6.52
Although volume in the blue chips has increased, but there is a strong flow of volume in the side Source: KSE
board as well. This is illustrated by the fact that the average traded value of all the shares has
dropped from a recent high of Rs. 47.25 to Rs. 26.91 as of yesterday. KSE-100: Top Gainers & Losers

The Stochastic Oscillator is once again in a failure swing however maintains its buy signal.
SBCP
Moreover the RSIs also continue to maintain their uptrends. Other momentum indicators also
support the bullish view. It is worth mentioning that the Bollinger Bands are steadily expanding, LPCL
indicating that the volatility is likely to remain high.
WTL
It is suggested to buy between 7,479 points – 7,595 points. The first resistance is at 7,725 points
and the second resistance is at 7,819 points. AHBL

SCBPL

PIA

WAZIR

JSGCL

HINO

BNWM

-10% -5% 0% 5% 10% 15% 20%

Source: KSE

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page2
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