Morning Briefing for Feb 17, 2012 – Standard Capital

Karachi: Engro Corp. to thrive in CY12

Engro Corporation (Engro) announced its financial results on Thursday for the year 2011.

According to Standard Capital, Engro Corp’s net profit surged by 19% to Rs8.06 billion against Rs6.79 billion in the corresponding period of last year which translated into EPS at Rs20.50 against EPS of Rs17.27 during the same period last year.

As always, ENGRO surprise many by quashing rumours of giving right share at premium and instead gave bonus shares of 30% ; however, Standard Capital is not happy that ENGRO gave lower final dividend of Rs 2/share. The cumulative dividend of ENGRO goes to Rs 6/share during CY11.

Gross profits of the company surged by 58% to Rs32.08 billion against Rs20.27 billion recorded in same period last year which is in the wake of urea price increase during CY11 i.e. from Rs 1,100/50 kg bag to Rs 1,700/50kg bag on average basis.

However, the year turned out to be difficult one for ENGRO since the company faced crisis of non‐supply of feedstock gas from Sui Northern network to its new plant. Standard Capital hopes this issue would resolve with the advent of Elections in 2012 when there will be a new policy which would ensure promised supply of gas to ENGRO’s new plant.

ENGRO’s old plant continued its supply of urea from the old plant at a higher rate since urea prices soared due to short supply of commodity to farmers. Engro Fertilizer attained market share of 21% i.e. supply of 1.26 million tons as against FFC’s usual supply of 2.0 million tons.

In the accumulative Corp. results, Engro Fertilizer and Engro Foods profitability surged (Standard Capital would separately cover Engro Foods since its part of Standard Capital’s coverage universe).

Standard Capital will cover Engro Corp. in CY12 with details. At present ENGRO is yielding CY12 P/E of 6.4x and a dividend yield of 5%. Standard Capital continues Standard Capital’s BUY ratings based on good performance anticipated from Engro Fertilizer (which is expected to run on at least 70% capacity this year), Engro Foods (which may attain 50% of Nestle margins) and Engro Polymer (which is expected to attain profitability in CY12 given functioning of local VCM plant).

Leave a Reply