Unity Foods Ltd Reports Growth and Diversification Plans

Karachi, Unity Foods Ltd (UNITY) held a briefing session to discuss its financial results for the fiscal year 2023 and to outline its future strategic direction. The company reported an increase in its topline and gross margins, along with plans for expansion and diversification in various business segments.

According to AKD Research, UNITY's topline for FY23 stood at PKR 101 billion, marking a 15% year-over-year increase, while gross margins improved to 13.5% from 9.5% in the same period last year. The company's Sunridge Foods retail outlets have received positive responses, and management plans to utilize these outlets as marketing tools. There is an expectation of strong acceptance for the company's new confectionery line, which includes products like cupcakes and marble cakes.

Unity Foods intends to fully integrate backward into its business value chain. This includes establishing its transportation and distribution channels, as well as venturing into agricultural and farming activities through 'UNITY plantations'. The volatility in local prices of palm and soybean oil, due to import restrictions and classification issues by authorities, contributed to higher local prices and subsequently increased gross margins during the period. However, the management anticipates a normalization of gross margins to around 9-9.5% going forward.

The company's production capacities in various segments, including edible oil, feed mill, solvent extraction, soap plant, flour processing, and rice processing, are set to increase with the addition of a chemical refinery by the third quarter of FY24. UNITY has experienced a decrease in its bulk edible oil segment by 9.2% year-over-year, while the consumer oil side grew by 43% year-over-year. The company's popular brands in the edible oil segment include Dastak and Ehtimam/Zauqeen.

Unity Foods' decision to backward integrate with Unity Plantations aims to improve the quality of raw materials and control over the production process. The management expressed support for the SIFC's green initiative to promote agricultural activities in the country and targets an internal rate of return (IRR) of around 35-40% for Unity Plantations.

In response to foreign exchange losses, UNITY has shifted from a supplier's credit basis to LC-at-sight, effectively limiting its FX exposure to the transit time of 40-45 days. This shift is expected to significantly reduce FX losses in the future. As the company's 5-year tax credit under SRO-65E nears expiration, management is considering acquiring land in the Special Economic Zone (SEZ) to mitigate future tax liabilities.