The announcement of the CY10 annual results by Engro Corporation turned the KSE market green yesterday, which was wearing red for most part of the day. The companys profits, which were higher than the consensus estimates, sent the stock price higher by nearly 3 percent.
The firms top line certainly looks fatter than ever before, since all businesses have merged into one entity. What must be heartening for the shareholders is that the companys core business, i.e. the fertiliser business has achieved tremendous results, contributing significantly to the Corporations overall profits.
Despite the floods and gas curtailment, Engro still managed to produce and sell slightly more urea during the year than the previous one. The growth in revenue came primarily on the back of 11 percent higher urea prices on year-on-year basis.
What is astonishing is the gross margins that Engro Fertilizers was able to make which were as high as 47 percent, way above the peer group. It is believed that high inventory gains on imported DAP must have also played a significant part in jacking the gross margins.
Why Engro must be thankful to the fertilizer arm is that despite being just one-fourth of the sales mix, its contribution to the bottom line was more than half, 58 percent to be exact.
Another fertilizer related business, the companys trading arm, Engro Eximp, is believed to have made huge profits over and above Rs1 billion as the phosphate prices and demand both surged in the final quarter. The future of Eximp though, remains bleak as DAP demand has slowed down considerably, whereas urea imports will also stop when the new plant gets in full swing.
The breakup of other businesses is yet to be revealed, but Engro Foods is believed to have turned to the green zone after reaching the break-even last year. The company has invested heavily in the dairy business and the launch and reported success of its ice cream segment will go a long way in further strengthening the firms top line in the near future and profits in the distant.
On the power front, Engro Energy, which has maintained very high effacing levels of 85-90 percent in the past, is expected to have shown steady performance. Regardless of the actual profits it may have made, a significant amount in excess of Rs300 million is expected to have been booked during the final quarter on account of reversal on exchange losses.
With massive contributions from the fertilizer related business, it seems the firms PVC business has continued to run in losses as the VCM plant remained non-operational for most part of the period, eroding a lot of good work done by other segments.
Going forward, the profits will continue to flow steadily from the fertilizer business, whereas the food business is expected to contribute more towards the bottom line instead of just the top line. Engro might have to take a back seat on Engros windfall profits as the future seems vulnerable. PVC business is one dark spot on an otherwise clean sheet, with which Engro will have to live with.
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ENGRO P&L
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Rs (mn) CY10 CY09 chg
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Sales 79,976 58,152 38%
Cost of sales 59,702 44,658 34%
Gross profit 20,274 13,494 50%
Gross margin 25% 23% 9%
Other income 897 390 130%
Finance cost 5,159 3,065 68%
PAT 6,441 3,719 73%
EPS (Rs) 20.72 12.24
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Source: KSE notice
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