Unity Foods is investing Rs2 billion in Pakistanis’ growing appetite for pizzas

Who doesn’t love a good pizza? The Italian dish was always available in small bakeries in the country, but only really became massively popular as a concept after the American chain Pizza Hut opened in Pakistan in 1994. Since then, there has been a mushrooming of pizza options in the country: other foreign fast food chains, local fast food pizza chains, oven-baked pizza, frozen pizza, chicken tikka pizza etc. 

All of this newfound appreciation for pizza requires flour. And that is where Unity Foods has seen an opportunity. In 2019, the edible oil maker had acquired 36,654,176 shares of flour company Sunridge Foods, or 69% equity stake in this company, effectively making Sunridge its subsidiary. And now, in a notice issued to the Pakistan Stock Exchange on October 2, the company intends to invest Rs2 billion in Sunridge, at the next Annual General Meeting to be held on October 23. 

“The plans are underway to produce various types of flours used in different food products like pizza, bread, pasta and various bakery products. Supply of these variants of flour faces a key challenge of quality consistency. With the additional plants being acquired, the company is expected to cater to the varying demands of intermediate users.” Unity Foods explained in its notice.

The move represents an expansion into a different branch of the food business for Unity Foods. But the company is no stranger to pivoting. In fact, to illustrate, just three years ago, the company was something else entirely: ‘Taha Spinning Mills”. But then, uncompetitive business practices and increased competition from Bangladesh and Vietnam caused a crisis in the textile industry. Many textile mill owners decided to give up on the business and move their productive capacity to other, more profitable ventures. Taha Spinning Mills was no different: it changed gears, changed its names to Unity Foods, and moved into edible oil, specialty fats and animal feeds.

That switch definitely paid off. Unity introduced two new brands, ‘Zauqeen’ and ‘Ehtemaam’, which both cater to the discount segment, and are both incredibly popular. When the company entered the edible oil industry, it had a refining capacity of 54,000 metric tons per annum; it now has a refining capacity to 234,000 ton per year.

In a note issued to clients on September 30, Fawad Naveed, research analyst at Abbasi and Company, a securities brokerage firm, pointed out that company’s revenue in fiscal year 2020 stood at Rs29.9 billion, compared to Rs14.1 billion in 2019, or a ‘tremendous’ growth of 111.9% year-on-year. “We note that this growth is attributed to the increase in the volumetric sales,” said Naveed.  That growth is still not as impressive as the shocking 407% growth from Rs2.8 billion in revenue recorded in fiscal year 2018. 

However, the company’s profit after tax stood at Rs 210 million, or a decrease of 17.8% year-on-year when compared to the profit of  Rs255 million last year. According to Naveed, an increase in finance cost by 89.1% year-on-year caused the bottom-line to plunge despite growth in revenues. Gross margin was also squeezed to 6.8% in fiscal year 2020, compared to 9.1% in fiscal year 2019,owing to rising input costs. 

Still, Naveed was optimistic about the company’s revenues. “Going forward, we expect the company’s revenues to grow further amid rising demand for the company’s products in the market.”

Confident in its growth, Unity Foods has been looking to expand. It is spending Rs3.75 billion on setting up a hydrogenation ghee plant, a chemical refinery, a fractionation plant and a storage facility at Port Qasim. It also acquired a crude palm oil refinery at Port Qasim that has the capacity to produce 500 tons per day.

Sunridge is just the latest expansion. The company started in 2015, and launched its first products in 2017, Sunridge Whole Wheat Flour. The brand has a distribution footprint across 52 towns nationwide, and has been certified by PSQCA, or Pakistan Standards and Quality Control Authority

Conventional ‘chakki atta’ in Pakistan typically contains residual stones. That is why the company’s key selling point is its PESA Mill technology, with a current capacity of 43,800 tons. This is Swiss technology which helps remove dirt, bacteria and other impurities from the flour. That is why the company claims that “the flour produced…commands premium due to cleanliness, long shelf life and durability of the final consumable products”, and also claims that “customers’ rotis will remain soft and fresh for 6 hours.”

Clearly, Unity Foods has spotted a demand for high quality flour, such as the type to be used in pizzas and pastas. After all, its own edible oil business benefited from the introduction of stricter regulatory requirements on sales of edible oil, as the demand for good quality, hygienic edible oil increased in Pakistan. 

And Sunridge would benefit from the extra cash. Its own financials have been struggling in comparison to Unity Foods. For the year ended June 30, 2020, the company incurred a loss of Rs27 million, which is still a lot better than 2019’s loss of Rs129 million, or 2018’s loss of Rs222 million. 

Still, Unity Foods  is optimistic. “The management plans to aggressively expand production capacity of the company and also intends to add new products to the portfolio. With operations benefiting from economies of scale, and product diversity, the company is expected to have substantial net profits in the years ahead.” it said in the notice.