NIRALA FOODS LIMITED TURNAROUND STORY By : Arhum Ghous

NIRALA FOODS LIMITED – TURNAROUND STORY

Background:
The company Nirala MSR Limited (formerly Shakarjang Foods Limited) was incorporated in Pakistan on October 12, 1988 And currently engaged in business of manufacturing and selling of sweets and confectioneries items, exporter of sweets And fruit products.
Turnaround Story:
In 2HY2013 the company reported an EPS of 0.6 after which the company initiated to expand its operation network both in Pakistan & abroad. The Quarter ended March 2014 the company reported a magnificent EPS of 0.24 (Growth 400%)
Key indications from 3rd Quarter result due to the following factors:
· Increase in 3rd Quarter Sales 329%
· Decrease in Financial Charges 450%
Forecasting a better result in 4th Quarter result due to the following factors:
 One major company outlet opened near Shaukat Khanum Hospital/ Wapda Town, Lahore in Ramzan. This is the boosting sales factor due to increase in demand of Nirala food items in ramzan season.
 Increase in Cash in hand 474% (Better Liquidity)
 The company prepared itself for Sales growth by analyzing that the increase in stock in trade and advances to suppliers prior to last quarter (Growth in Inventory)
FORECAST of stock price:
Currently the decrease in financial charges and increase in 3rd Quarter sales with the support of company growth plans is a sign a better EPS.
Turnaround of earnings would be to take the potential earnings. Means that 0.24 in the 3Q and if it improves to 0.5 it means around 1.5-2 EPS for the year.
Calculation:
Actual: 0.24 in 3Q
Expected: 0.4 in 4Q => 0.4*4 = 1.6 * 0.9 (10% discount) = 1.44
FMCG multiple = 40x
25% discount to FMCG multiple = 30x
Target = 30x * 1.44 = 43.2
Price with Expectations:
 If the 4th Quarter results turn around to be EPS 0.75, the target price of NMFL is 79.92 (High Expectation)
 If the 4th Quarter results turn around to be EPS 0.5, the target price of NMFL is 43.2 (Average Expectation)
 If the 4th Quarter results turn around to be EPS 0.24 (same as 3rd Quarter), then target price of NMFL is 25.92 (Low Expectation)

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