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Pakistan’s Engro Foods Plans to Expand Overseas, Raise Exports

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June 3 (Bloomberg) -- Engro Foods Ltd., Pakistan’s biggest producer of packaged milk, plans to expand overseas within a year by acquiring a company or setting up its own plant to take advantage of rising food prices globally.

“We have tracked down two or three companies we could buy, or we could start a new project,” Chief Executive Officer Sarfaraz A. Rehman, said in an interview at his office in Karachi, without giving details.

Sales at Engro Foods have risen more than 10-fold since the unit of publicly traded Engro Corp. started business in 2006, and the company plans to invest $300 million during the next 5 years to become profitable.

“This company has taken over market share fast by spending on advertising and reaching small towns across the country,” said Bilal Qamar, research analyst at JS Global Ltd. in Karachi.

The food company, which mainly makes dairy products, recorded a loss of 434 million rupees ($5 million) in 2009 compared with a loss of 554 million rupees the previous year, according to the latest annual report of Engro Corp. Last year’s loss was because of marketing costs for a new ice cream, the report said.

Engro Foods has a market share of 38 percent in packaged milk in Pakistan, compared with 36 percent for Nestle Pakistan Ltd., Qamar said.

Engro Corp. rose 1.7 percent to 177 rupees at 10:36 a.m. on the Karachi Stock Exchange today. The shares are up about 6 percent this year, compared with a 2 percent gain on the Karachi 100 stock index.

Rising Sales

Sales at Engro Foods rose to $174 million in 2009 from $16.5 million in 2006, according to a profile sent to Bloomberg by the company. Sales are forecast to rise to $240 million this year.

Engro Foods plans to start exporting its Omore brand of ice cream to the Middle East after shipping powdered milk to the region and to Afghanistan, Rehman said. The company may sell powdered milk to Central Asian nations, he said.

The company is also planning to expand into the grain and fruit business, he said, without giving details. Engro Foods exports Basmati rice and will finish building a $38.3 million rice processing plant by the end of this year.

“We hope our business outside Pakistan will become bigger than our domestic business,” said Rehman, 52, who joined the company four years ago. “We hope to be the first food company from Pakistan to go multinational.”

Global food prices rose 7.8 percent in the year to May, according to the website of the United Nations Food and Agriculture Organization.

Milk Demand

Pakistan is the world’s third-biggest milk producer and makes 35 billion liters of milk a year, according to the government.

Milk demand in Pakistan is growing 15 percent a year, Rehman said. Engro Foods’ revenues from dairy products rose 72 percent last year, according to the parent’s annual report.

Engro Foods will have invested $200 million during a five-year period by the end of 2011 and will spend between $200 and $300 million in the next five years, Rehman said.

The company may also sell shares in initial public offering and trade its stock on the Karachi stock exchange, Rehman said, without specifying a timeframe.

To contact the reporters on this story: Farhan Sharif in Karachi at fsharif2@bloomberg.net; Khurrum Anis in Karachi at Kkhan14@bloomberg.net.

To contact the editor responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net.

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