Talk about turnarounds. Pakistans largest conglomerate Engro Corporation has just made a massive one. Engro managed to put up an impressive show in 1H CY13, having witnessed a lacklustre 1H CY12. Change in fortunes in its core fertilizer business was the key driver for the impressive showing.
With better availability of feedstock gas during the period, Engro Fertilizers produced 13 percent more urea and sold even more-more than 50 percent up year on year. Though the urea prices remained stable during the period, it was better availability and diversion of gas to the new more efficient Enven plant which enabled Engros higher gross margins (40%) on its fertilizer business.
Fertilizer business has reclaimed the lead position in terms of revenue contribution to the Corporation. The 31 percent contribution to Engros revenue is significantly higher than the one-fourth it contributed same period last year. Better margins due to gas diversion strategy and higher production-coupled with lower financial charges-led to a healthy bottom line, in sharp contrast to a woeful one last year.
Engro Foods-the Corporations flag-bearer last year-was not as exemplary. Its revenue contribution to Engro Corporation dropped from 37 percent last year to 28 percent this year. Engro Foods UHT segment faced pressure during the period owing to supply chain bottlenecks, which the Company expects to iron out going forward. That said bottom line contribution of 29 percent is still healthy despite a not-so-stellar performance.
The power generation business continues to be the cash cow and is expected to take the number 2 slot in terms of bottom line contribution, surpassing the foods business. Engro PowerGens plants run on very high efficiency and the recent payment of Rs8.97 billion to the Company on account of circular debt settlement would do a world of good for its financials going forward.
The rice business is believed to have performed well. Phosphate sales have increased as well. These two segments could propel Engro Eximps earnings. Another silver lining is a meaningful contribution from Engro Polymer after a long while, as PVC prices have shaped better and finance costs have reduced significantly.
Engro will keep an eye on feedstock gas price which is expected to be increased soon. The Company is confident that it has the pricing power to pass on the entire impact and still compete with imported urea. The inherent advantage of concessionary feedstock for its new plant puts it at a favourable position relative to its peers-offering Engro more leverage with urea pricing.
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ENGRO CORPORATION
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Rs (mn) 1HCY13 Y/Y chg 2QCY13 Y/Y chg
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Sales 66874 25% 35573 17%
Cost of sales 48807 21% 26710 18%
Gross profit 18068 41% 8863 13%
Gross margin 27% 25% -
Other income 1009 -4% 734 53%
Finance cost 6845 -11% 3784 -8%
PAT 3827 NA 1812 631%
EPS (Rs) 6.83 3.19
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Source: KSE notice
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