Salalah Flour Mills is expanding in a bid to benefit from Oman's rising food requirements, which would bode well for the company's stock.
The Omani market heavyweight, with a 30 per cent market share, has already been operating beyond its maximum capacity, but the company's proposed new flour production line should further increase production to 1490 tonnes per day from the current 890 tonnes per day.
The project, expected to cost 7.3 million Omani rials, should increase Salalah's top-line growth to about 17 per cent over the next three years, said Kanaga Sundar, the head of research at Gulf Baader Capital Markets in Muscat.
Salalah Flour Mills benefits from favourable conditions in the Gulf country.
The country has a young and growing local population, expanding GDP and a burgeoning expat community, Mr Sundar said.
The company procures wheat from international markets and converts it into flour. Oman does not have a strong agrarian sector.
Wheat futures declined by 25 per cent in the past 12 months, trading at about US$6.47 per bushel.
The government introduced several measures to help its local companies, after wheat hit a peak in 2010.
It began offering subsidies to producers as a cushion when the price of wheat went beyond a certain limit.
The move puts players such as Salalah at an advantage over regional and international competitors, Mr Sundar said.
The country's government has also decided to supply and install metal silos that will store 300,000 tonnes worth of wheat for almost a year, against three months of inventory currently. The construction of the silos is expected to be completed by the end of next year.
The silos would help Salalah maintain its inventory levels and margins, and reduce price inflation during times of drought, Mr Sundar said.
Salalah Flour Mills recently started a pasta business and expanded the geographic reach of its products in Oman and beyond to help fatten its margins.
Salalah Macaroni, its pasta subsidiary, has the capacity to produce 93,000 tonnes a year of spaghetti.
Salalah Flour Mills set up branches in Nizwa in the northern region of Oman, where the majority of the population lives. Salalah has also started to export to new markets such as Yemen, Somalia, Djibouti and Zanzibar.
Profit-booking pulls down Muscat shares
After the strong recovery in the past few sessions, the MSM 30 Index pulled back 0.56 per cent to close at 5,871.60 points. The MSM Sharia Index closed at 921.13 points, down by 0.18 per cent.