Engro Corporation (ENGRO) announced its full year CY14 financial results yesterday, with the polymer business wiping off the tremendous improvement in flagship fertilizer and food businesses, taking the yearly profits down 6 percent year-on-year.
The fertilizer revival has been going on for some time and CY14 was the first year where both its plants ran simultaneously. As a result, urea volumetric sales improved by 16 percent year-on-year, which proved crucial as the inability to pass on the complete impact of GIDC resulted in erosion in gross profit margins from 44 percent in the same period last year to 37 percent. The fertilizer revenue still made the biggest chunk of ENGROs overall revenue, contributing one-third of the total pie.
Engros early restructuring of loans and then swift deleveraging lent an able hand to make up for the slide in gross margins. The foods business too, had a revival of sorts, despite tight gross margins. Distribution efficiencies and deleveraging again played part in jacking up profits for Engro Foods.
It was the polymer arm of the conglomerate that continued to disappoint. Engro Polymer, apart from some short periods, has mostly been in trouble, and CY14 was no different. The polymer businesses netted a loss over Rs1 billion, as margins remained sluggish and the rest was eaten up by excessive financial charges. The trading business too is believed to have caused a strain on the overall corporations profits.
Moving ahead, Engro can be confident of even better returns from the fertilizer business, as after years of unending trouble, things seem to be falling in place. Gas supply from Guddu ensures timely availability for the rest of CY15, which is good enough to keep Engro pressing.
The food margins are also improving and with a deleveraged balance sheet, good profits can be locked in. Engro would certainly be looking at its loss making arms, and don be surprised if it decides to part ways.
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Engro Corporation
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Rs (mn) CY14 CY13 chg
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Sales 175958 155360 13%
Cost of sales 139770 114763 22%
Gross profit 36189 40597 -11%
Gross margin 21% 26%
Admin & selling expense 14804 13784 7%
Other income 3719 2732 36%
Finance cost 12344 15634 -21%
PAT 7801 8325 -6%
EPS (Rs) 13.59 15.29
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Source: KSE notice
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