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Morning Call about ENGRO Corporation – Arif Habib Limited

Karachi: Enven plant likely to resume production soon

ENGRO’s profitability surged by 27% YoY in 9MCY11

According to Arif Habib Limited, Engro Corporation Limited (ENGRO) held an analyst briefing yesterday to discuss its 9MCY11 financial results. The company recorded consolidated profit after tax (PAT) of PKR 5,590mn (EPS: PKR 14.22) during the period compared to PKR 4,393mn (EPS: PKR 11.18) earned in the corresponding period last year. The Engro Fertilizer Limited (EFL) remained the primary bread earner for the company despite gas curtailment issues, contributing 63% to the bottom line. Moreover, Power project and Vopak’s contribution to the company’s profit after tax also remained healthy during the period. However, Engro Polymer and Avanceon continued to remain earnings draggers for the company. Along with the results ENGRO announced an interim cash dividend of PKR 1.50/share.


Profitibility Breakdown (PKRmn) 9MCY11 EPS 9MCY10 EPS YoY
Fertilizer 3,510 8.93 2,879 7.32  22%
Eximp 632 1.61 989 2.52 -36%
Polymer (440) (1.12)  (762) (1.94)  -42%
Food 408 1.04  35 0.09  n.a
Power 1,239  3.15  377 0.96  229%
Vopak 781 1.99 793  2.02 -2%
Avanceon (128) (0.33)  (106) (0.27)  21%
Consolidated earnings 5,590 14.22 4,393 11.18 27%
Source: Company & AHL research


Fertilizer profitability increases due to production from Enven

Engro Fertilizer (EFL) remained the primary bread earner in 9MCY11 for the company, recorded PAT of PKR 3,510mn (EPS: PKR 8.93), a growth of 22%YoY due to both higher Urea prices and off take. Urea sales during the period were 954kT (234 kT from new plant), an increase of 48% YoY, primarily due to production from the new plant. Consequently, Engro’s market share improved to 23% in 9MCY11, from 15% seen in 9MCY10. On the other hand, sales of blended product (Zarkhez and Engro NP) increased by 38% YoY to 61 kT from 45kT reported last year.

Engro Eximp bottom line deteriorated due to rice business

In 9MCY11 the company reported a PAT of PKR 632mn (EPS: PKR 1.61) compared to profit of PKR 989mn (EPS: PKR 2.52) witnessed same period last year, a decline of 36% YoY. DAP sales for the period stood at 204 Kt, a mere rise of 4% YoY compared to 196 kT in the corresponding period last year. Lower profitability was due to lower margins as the Eximp enjoyed inventory gains last year as oppose to this period and higher initial losses in the rice business.

EPCL; Troubled VCM operations continue to drag the profitability

Engro Polymer & Chemicals Limited (EPCL) suffered net loss of PKR 440mn (LPS: PKR 0.66) in 9MCY11, compared to net loss of PKR 762mn (LPS: PKR 1.15) in the corresponding period last year. This decline in loss was on account of 58% YoY higher in house VCM production to 57k tons in 9MCY11 compared to 36k tons in the corresponding period last year. However this increase in VCM production was not sufficient enough to pull the profitability out of the red zone as VCM plant remained shut down till August 17, 2011. EPCL has started to operate its VCM plant at capacity since the start of October 2011, which will enable the company to reap the benefits of integrated facility.

Engro Foods profitability is in line

In 9MCY11, Engro Foods revenues grew by 46% YoY to PKR 22bn translating into PAT of PKR 408mn as compared to meager profit of PKR 35mn posted last year. This is due to 20% higher volumetric growth in UHT milk segment mainly driven by Tarang. Consequently, Engro’s market share in ambient UHT segment has increased to 44% from 39% in Dec’10.While its ice cream segment remained in losses, it improved its market share to 23% (up 4ppt from December 2010).

Engro Energy added PKR 1,239mn to ENGRO’s bottom line in 9MCY11

Engro Powergen’s net earnings soared to PKR 1,239mn, compared to profit of PKR 377mn reported last year because plant came online in March 2010. Additionally, profitability from Vopak contracted by 8% YoY to PKR 781mn compared to PAT of 793mn in 9MCY10.

Gas outlook

Engro two days earlier hiked Urea prices by PKR 400/bag due to no gas supply to their new plant since October 1st, 2011. However, last night ENGRO reverted the latest hike in Urea price after excise department disallowed the company to dispatch any Urea shipments at the new price. The government has indicated to supply 80mmcfd of gas before the start of winter season. Arif Habib Limited believes this gas curtailment issue to continue till 1QCY12 and then Engro Fertilizer should get at least 80mmcfd of gas. Arif Habib Limited views ENGRO’s share price is highly depressed mainly due to gas outages issues and are cognizant of the gas outages risk. Arif Habib’s Dec’11 SOTP based target price for ENGRO stands at PKR 248/share, which offers an upside potential of 99% from the last closing price of PKR 124/share. Thus, Arif Habib recommends a BUY.

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