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JS Securities Limited – JS Research (November 26, 2021)

Karachi, November 26, 2021 (PPI-OT): UNITY: Corporate briefing session key takeaways

Unity Foods Limited (UNITY) held its corporate briefing session yesterday to discuss the outlook. We present key takeaways from the session.

Unity Foods Limited (UNITY) held its corporate briefing session yesterday to discuss FY21 results and outlook. The company posted a profit of Rs3.1bn in FY21 compared to a profit of Rs0.2bn in the SPLY. Primary reasons for the increase in company’s profitability in FY21 were higher sales (increased by 2.26x YoY) and better Gross and Net level performance.

The industrial and commercial oil segment showed a massive YoY growth of 147.4% followed by the company’s wheat flour flagship, Sunridge, which showed a sales growth of 172% on a YoY basis.

The company has clientele in all regions of the country with the biggest contributor being the Central region which has a 47% share in the overall mix.

Unity Foods’ flagship edible oil brand Dastak showed a volumetric increment of 78.8% YoY while the discounted segment brands Ehtimam and Zauqeen showed a mere 3% growth in volumes in FY21.

The company has expanded its distribution network by 131% YoY and now has 15,705 shops compared to 6,800 shops in FY20. UNITY has also increased the product portfolio of Sunridge which now has 6 variants of flour compared to only one variant in FY20.

During 1QFY22, company sold 63k tons of edible oil whereas guidance for total sales for the year is ~270k tons.

Due to ease in lockdowns and global supply challenges subsiding, the management believes that palm oil prices will revert to normal. Palm oil prices increased by more than double since July last year (US$ 1,375/ton currently vs US$590/ton at the start of FY21).

The company is trying to convert its foreign currency liabilities to local currency exposures to hedge the devaluation risk it faces.

Unity’s management expects Flour Mill capacity to increase to 400tons/day during FY23. The Integrated Refinery is expected to come online by 2QFY23, whereas the Oil terminal is expected by the end of FY23. The company is also working on a Margining and Shortening plant which is also expected to come online by end of FY23. The upcoming rights issue planned of Rs5.4bn will cater to the working capital requirements.