Ibrar Chaudary M. Naqeeb Arshad M.

Umer Jafar Saad Akhtar Shazil Ahmad Rao Kamran

ENGRO FOODS LIMITED (EFL)

Strategic Analysis

Engro
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Engro Corporation Limited largest industrial corporations in Pakistan operating in various sectors including Fertilizer, Foods, Energy, Chemicals and Business Automation Solutions Current share market price as of June 10, 2011 is PKR 187/- per share Engro Foods started operations in 2006 Attained market leadership in Ultra High Temperature (.UHT.) Ice Cream, Flavored Milk, Fruit Juices and Milk Powders

Products

Corporate Structure

Mission Statement
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Our mission is twofold, to help farmers maximize their farm produce by providing quality plant nutrients and technical services upon which they can depend.To create wealth by building new businesses based on company and country strengths in petrochemicals, information technology, infrastructure, food and other agriculture sectors.

Proposed Mission Statement

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We aspire to make Engro the most successful premier food producer in the world.We are committed to supplying the consumer and our customers with the finest, high quality products; satisfying real life needs with unique ideas, fulfilling a promise to deliver the best, ensuring the everything we make ,caring for people, communities and the environment. EFL support these goals with a corporate philosophy of adhering to the highest ethical conduct in all its business dealings, treatment of its employees and social and environmental policies.

Component Check
Component of Mission Statement Customer Product or Service Market Technology Concern for Survival and Growth Philosophy Self-Concept Concern for Public Image Concern for employees Companys Yes Yes No Yes Yes No No No No

Proposed
Yes Yes Yes Yes Yes Yes Yes Yes Yes

Vision Statement
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Companys: Our vision is to become a fast expanding mega foods company. Proposed: To be the premier Pakistani enterprise with a global reach, passionately pursuing value creation for all stakeholders.

EXTERNAL ASSESSMENT
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Industry Analysis:
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Pakistan currently stands as the 5th largest Milk producing country in the world Milk in form of UHT, Powder and Chilled dairy Powder Milk market:
Powder Milk Segmentation

Tea Whitening Infant Nutrition Growing up and all purposes

External Analysis
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Juices market: Ice cream industry is dominated by Walls followed by Omore as # 2.

Juices and Nector Segmentation

Juices and Nector Value Added Still Drinks Still Drink

STEEPLE Analysis
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S-Social Factor:
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Literacy rate is improving, resulting in a better awareness of the Olpers and Tarang UHT treated milk Claims latest technology in UHT treatment compared to competitors No sales tax on the milk, a plus point Seasonal shortages in milk supply

T -Technological Factor:
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E-Economical Factor:
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E-Environmental Factor:
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STEEPLE Analysis
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P-Political Factor:
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Engro not bound by any trade agreements Minimum wage, working time, ingredients, no under 18 work They dont sale on credit or on interest

L-Legal Factor:
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E-Ethical Factor:
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Porters Five Forces Model

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Threat of New Entrants

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Capital requirement is high, economies of scale for existing companies> threat is low Large number of suppliers, less likely to negotiate as large volumes are bought from them> low power Large corporate clients like airlines and no buyer/distributer can do backward integration> low bargaining power

Bargaining Power of Suppliers

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Bargaining Power of Buyers

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Porters Five Forces Model

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Availability of Substitutes
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Number of substitutes available in food industry Large companies taking over smaller ones, increasing competitive advantage. Strong competition faced by Haleeb, and now Goodmilk too> Strong rivalry

Competitive Rivalry
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Opportunities
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Government of Pakistan Increased its fundings in the diary sector. (Ministry of Livestock and Farming) Consumption of Processed Liquid Milk is increasing at the rate of 12%.(WHO Report 2011) Third largest Producers of Milk with 50 million milk animals.(Statistical Bureau of Pakistan 2011) More than 39% of the unsegment (not Catered) PLM Market. Annual Production of Milk is increasing 3 billion liters per year. ( Ministry of livestock Report) WHO and other organizations create awareness about the health and hygiene due to this processed liquid Milk Consumption is increasing. ( Seminar WHO 2010) Milk is the largest commodity from the livestock accounting 51 % of the total value of the sector. There are many byproducts of milk like cheese, butter, cream etc.

Threats
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Due to recession the PPP is decreased by 11%. (Annual Report of State Bank of Pakistan), so due to this consumer become price sensitive Doodh Wala (Guwala) has taken more than 47% of the Market. (PCSIR Report) 13% inflation, which results in PLM becoming out of reach to general Public.( Statistical Bureau Of Pakistan 2011) There is a high level of Political instability in country. Policies of the country Changes very rapidly. There is only one big packaging supplier of PLM (Tetra Pak), which makes all PLM, brands same to hygiene level.

EFE Matrix
Key external Factors Opportunities Government of Pakistan Increased its fundings in the diary sector. (Ministry of Livestock and Farming) Consumption of Processed Liquid Milk is increasing at the rate of 12%.(WHO Report 2011) Third largest Producers of Milk with 50 million milk animals.(Statistical Bureau of Pakistan 2011) More than 39% of the unsegment (not Catered) PLM Market. Annual Production of Milk is increasing 3 billion liters per year. ( Ministry of livestock Report) WHO and other organizations create awareness about the health and hygiene due to this processed liquid Milk Consumption is increasing. ( Seminar WHO 2010) Milk is the largest commodity from the livestock accounting 51 % of the total value of the sector. There are many byproducts of milk like cheese, butter, cream etc. Weight Rating Weighted Score 0.2 0.4 0.3 0.4 0.3 0.05 0.05 0.1 0.1 0.1 0.1 0.05 4 4 3 4 3 1

0.025 0.1

1 2

0.025 0.2

EFE Matrix
Threats Due to recession the PPP is decreased by 11%. (Annual 0.075 Report of State Bank of Pakistan), so due to this consumer become price sensitive Doodh Wala (Guwala) has taken more than 47% of the Market. (PCSIR Report) 13% inflation, which results in PLM becoming out of reach to general Public.( Statistical Bureau Of Pakistan 2011) There is a high level of Political instability in country. 0.1 0.05 3 0.225

3 2

0.3 0.1

0.05

1 1 1

0.05 0.05 0.1

Policies of the country Changes very rapidly. 0.05 There is only one big packaging supplier of PLM (Tetra 0.1 Pak), which makes all PLM, brands same to hygiene level.

Total

2.7

Competitive Profile Matrix (CPM)

Critical Success Factor Weight EFL Rating Score Nestle Rating Score Haleeb Rating Score

Hierarchy of Goals Operational Activities Distribution Channel Continuous Improvement Enhance Brand Image Organizational Culture Percentage Error in Internal versus External Audit Research and Development Cross Functional Integration

0.2 0.1 0.1 0.1 0.1 0.1 0.1

3 2 4 3 4 2 3

0.6 0.2 0.4 0.3 0.4 0.2 0.3

4 3 3 4 4 4 3

0.8 0.3 0.3 0.4 0.4 0.4 0.4

2 3 4 2 2 2 2

0.4 0.3 0.4 0.2 0.2 0.2 0.2

0.1 0.1

4 3

0.4 0.3

4 3

0.4 0.3

3 3

0.3 0.3

Total

3.1

3.7

2.5

INTERNAL ASSESMENT
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Departments
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Administration Finance & Accounting Human Resource Marketing Milk Procurement MIS Production Quality Assurance Supply Chain & Distribution Marketing Research

Financial Analysis
Financial Ratios Current Ratio Long Term Debt/ Equity Ratio Total Debt to Equity Ratio Debt Service Coverage Ratio Book Value Per Share Earnings Per Share Gross Profit Margin Total Asset turnover Ratio Fixed Asset Turnover ROA ROE Inventory Turnover Ratios 2006 0.92 23% 31% (7.38) 11.58 (5.86) (0.02) 0.75 1.15 -0.21 -0.36 8.107 2007 1.38 51% 59% (7.06) 6.07 (3.93) 0.07 0.81 1.28 -0.143 -0.46 6.78 2008 1.96 50% 52% (0.90) 6.35 (2.26) 0.127 1.115 1.67 -0.07 -0.20 4.994 2009 1.26 50% 51% 0.42 6.22 (0.97) 0.17 1.61 2.33 -0.048 -0.128 8.371 2010 1.43 50% 51% 2.13 7.32 0.31 0.20 1.68 2.76 0.014 0.03 6.537

IFE Matrix
Key Internal Factors Weights Rating Weighted Scores

Strengths Engros back 0.1 PR with the farmers due to the fertilizer business 0.05 Fixed Asset Turnover increased by 18.45% ((2.76-2.33)/2.33) which shows efficient utilization of its equipment. Positive response from Customers. Revenue increased by 43%, which shows the high level of growth. ((20944943-14565341)-14565341) Third Generation Plant Strong Consumer and Product Research Current Ratio increased by 55% compared to base year ((1.43-0.92)/0.92) 0.1

4 3 4

0.4 0.15 0.4

0.1

0.4

0.05 0.05 0.1

4 3 4

0.2 0.15 0.4

IFE Matrix
Weakness Owning Red Color Narrow Brand Portfolio 0.1 0.1 2 1 2 1 0.2 0.1 0.2 0.05

Low ROA/ROE even in negative first 4 years 0.1 (0.014/0.03) Low earning per share even negative in first 0.05 4 years. (-5.86,-3.93,-2.26,-0.97,0.31) Milk collection and distribution costs. Packaging:Tetra Pak monopoly 0.05 0.05

2 1

0.1 0.05

Total

2.8

Strengths
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Engros back PR with the farmers due to the fertilizer business Fixed Asset Turnover increased by 18.45% ((2.76-2.33)/2.33) which shows efficient utilization of its equipment. Positive response from Customers. Revenue increased by 43%, which shows the high level of growth. ((20944943-14565341)-14565341) Third Generation Plant Strong Consumer and Product Research Current Ratio increased by 55% compared to base year ((1.43-0.92)/0.92)

Weaknesses
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Owning Red Color Narrow Brand Portfolio Low ROA/ROE even in negative first 4 years (0.014/0.03) Low earning per share even negative in first 4 years. (-5.86,-3.93,-2.26,-0.97,0.31) Milk collection and distribution costs. Packaging:Tetra Pak monopoly

A Diversified Conglomerate
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Fertilizer Business Engro Energy Limited Engro Innovative Automation Limited Engro Vopak Terminal Limited Engro Asahi Polymer & Chemicals Limited Engro Foods Limited

SWOT Matrix
SO Strategies(Proactive) WO Strategies

Add more new Product Research Centers(S6,O1,O2) Should cater the niche market.(04,S2,E1) Built new plants and add efficacy to them.(S3,03,02,01)

Should build its own packaging plant.(W6,O1) Add new products to the product family(line).(W2,04) Add new distribution channels in each province.(02,05,W5) Must enhance operational activities to cater new markets. (W3,04,O3) Should more focus on niche market to enhance profitability.(W4,04) Should more focus on the product development through byproducts to cater niche market(W2,O8,O7)

SWOT Matrix
ST Strategies
Should focus on the low cost leader and differentiation strategy. (T1,S6) Should adopt a pull and push strategies to take a market of Guwala.(T2,S5,S6)

WT Strategies( Defensive)
Go for backward integration to build Engros packaging plant.(T5,W6) Make an efficient distribution system that provides cost leadership.(T3,T2,W5)

SPACE Matrix
FS Total Asset Turnover Return on asset Return on equity IS Funding in livestock increase Regional surveillance unit ES Flood infected livestock Contamination of water resources Inflation and political instability CA Market Share Business models Oracle CRM system

SPACE Matrix

Boston Consulting Group (BCG) Matrix

Internal External (IE) Matrix

Grand Strategy Method

QSPM
STRATEGY 1 STRATEGY 2 Should focus on the Product Should focus on the high chain Development through distribution system in each byproducts to cater the niche province. market. WEIGHT AS TAS AS TAS 4 2 3 4 0.16 0.06 0.12 0.24 3 4 4 3 0.12 0.12 0.16 0.18 -

KEY FACTORS

OPPORTUNITIES Government of Pakistan Increased its fundings in the diary 0.04 sector. Consumption of Processed Liquid Milk is increasing at the rate of 0.03 12%. Third largest Producers of Milk with 50 million milk animals. More than 39% of the unsegment (not Catered) PLM Market Annual Production of Milk is increasing 3 billion liters per year. WHO and other organizations create awareness about the health and hygiene due to this processed liquid Milk Consumption is increasing 0.04 0.06 0.03 0.01

Milk is the largest commodity from the livestock accounting 51 % 0.05 of the total value of the sector There are many byproducts of milk like cheese, butter, cream etc. 0.06

4 4

0.2 0.24

3 2

0.15 0.12

QSPM
THREATS Due to recession the PPP is decreased by 0.03 11%. (Annual Report of State Bank of Pakistan), so due to this consumer become price sensitive Dood Wala (Guwala) has taken more than 47% of the Market 13% inflation, which results in PLM becoming out of reach to general Public There is a high level of Political instability in country. 0.06 0.01 -

3 3

0.18 0.03

4 2

0.18 0.02

0.02

4 3

0.08 0.15

2 1

0.04 0.05

Policies of the country Changes very 0.02 rapidly. There is only one big packaging supplier of 0.05 PLM (Tetra Pak)

QSPM
STRENGTHS Engros back. PR with the farmers due to the fertilizer business. 0.04 0.05 4 4 0.16 0.2 3 2 0.12 0.1

Fixed Asset Turnover increased by 18.45%.

0.02

4 3 2 4 3 2 1 -

0.08 0.15 0.08 3 2 4 2

2 2 1 -

0.04 0.1 0.04 0.15 0.06 0.2 0.06

Positive response from Customers. Revenue increased by 43%, 0.05 which shows the high level of growth. Third Generation Plant. 0.04 Strong Consumer and Product Research. Current Ratio increased by 55% compared to base year. WEAKNESSES Owning Red Color. Narrow Brand Portfolio. Low ROA/ROE even in negative first 4 years (0.014/0.03) Low earning per share even negative in first 4 years. (-5.86,-3.93,-2.26,-0.97,0.31) Milk collection and distribution costs. Packaging:Tetra Pak monopoly 0.04 0.05 0.03 0.05 0.03 0.01 0.05 0.03

0.2 0.09 0.1 0.03

Total

2.55

2.01

Market Segmentation & Positioning

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Segment and target the market Demographics Psychographics Behavioral Positioning the brand:

Proposed Organizational Structure

EBIT & EPS Analysis

DEBT
2011

EQUITY

COMBINATION
Boom million 4886.5 31.25 4855.25 1699.34

Recessi Actual Boom Recessi Actual Boom Recessi Actual on Million Million on Million Million on Million Million Million Million 2073.5 0 2073.5 725.725 1347.77 768 1.74 3770 0 3770 1319.5 2450.5 768 3.19 4886.5 0 4886.5 1710.27 2073.5 62.5 2011 703.85 3770 62.5 3707.5 1297.62 4886.5 62.5 4824 1688.4 3135.6 748 4.19 2073.5 31.25 2042.25 714.78 3770 31.25 3738.7 1308.6

EBIT Interest EBT Tax (35%) NI #of share EPS

3176.22 1307.25 2409.88 768 4.13 748 1.75 748 3.22

1327.47 2430.15 3155.91 758 1.75 758 3.2 758 4.16

Evaluation
Revised IFE Matrix
By focusing on the Product Development through byproducts to cater the niche Market Strength PR with the farmers due to in the fertilizer business Weight 0.1 Rating 4 Weighted Score 0.4

Engros Back Fixed Asset Turnover increased more than 18.45%

0.1 0.15

3 3

0.3 0.45

Brand Portfolio Third Generation Plant Increase in the EPS Weakness Milk and Distribution cost Packaging:Tetra Pak Monopoly Total

0.2 0.1 0.1 Weight 0.15 0.1 1

4 3 4 Rating 2 1

0.8 0.3 0.4 Weighted Score 0.3 0.1 3.05

Evaluation
Revised EFE Matrix
By focusing on the Product Development through byproducts to cater the niche market Opportunities Government of Pakistan increased its funding in the dairy sector There is 39% of the unsegment market of PLM Milk is the largest commodity of livestock (51%) There are many byproducts of milk like butter, cheese& Cream Threats Due to recession the PPP is decreased by 11%, so due to this consumer become price sensitive. Energy Crisis There is a high level of political instability Policies of country changes very rapidly There is only one big packaging supplier of PLM, which makes all PLM brands same to hygiene level Total

Weights 0.1 0.15 0.2 0.2 Weights 0.1 0.1 0.05 0.05 0.05 1

Rating 4 4 4 4 Rating 3 4 4 3 1

Weighted Score 0.4 0.6 0.8 0.8 Weighted Score 0.3 0.4 0.2 0.15 0.05 3.7

Recommendations
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Should add new spectrum of products to their portfolio. Should focus on the backward integration by building their own packaging plant. Organizational Structure should be converted from SBU to Matrix structure. Should focus on the high chain distribution channel. EFL must enhance the operational activities to cater the new markets. Should focus on the low cost leadership and differentiation strategy to take the market of Guwala.