Theres something about Engro

Even though Engro Corporations shares are not always the blue-eyed blue chip of the countrys stock exchanges, theres something about Engro that captivates the minds of Pakistanis.
On one hand, the companys share price has significantly underperformed the benchmark index since January 2010, barring a brief period.
The market price has also taken a hit in recent weeks, as investors remained fixated by the companys gas curtailment-induced woes that have delayed the commencement of commercial operations of the new EnVen fertilizer plant by 9 months.
Investors have also been loath to sizeable debt obligations faced by the company. At last tally Engro Corporation had outstanding liabilities of more than Rs130 billion, while the assets side stood around Rs170 billion, according to a research note issued by InvestCap, last Friday.
Yet, on the other hand, the companys Rupiya certificate sold like hot cakes to the point where Engro raised Rs4 billion through the issue in a matter of days.
For those investors who consider debt obligations and gas shortage to be the only concerns; Engro CFO Ruhail Muhammad brought good tidings, through an analyst briefing held last Friday.
Firstly, the EnVen plant commenced operations from June 24, 2011, albeit with a gas supply of 80 mmcfd compared to the governments earlier commitment of 100 mmcfd, he informed.
Secondly, Muhammad revealed that, "the Economic Coordination Committee has approved the supply of 30 mmcfd gas to Engros plant from Mari Deep to supplement the current supply". He elaborated that a pipeline stretching about 38 kilometres will be built within the next 4 months to tap this supply.
Thirdly, the debt-to-equity ratio is likely to improve in coming days as a $30 million loan from IFC is expected to be converted into equity and an initial public offering worth Rs2 billion is expected in the third quarter of this fiscal.
But some contrarians argue that the companys stock may still never meet analysts expectations.
They assert that even if the company is able to significantly lower its debt-to-equity ratio from the current 66:34; and secure enough gas supply to run both its plants at full-capacity; the target price would remain elusive.
"Engro Corp is a holding company and can be considered similar to a closed-end mutual fund" said Invisor Securities analyst, Shamoon Tariq. "Such funds are typically traded at a discount of 30-40 percent in the market as compared to shares of individual companies that are managed by the holding company" he added.
However, not all informed observers are as gloomy. "Such a discount on the share price of the holding company exists where the subsidiaries are listed and liquid in the market, and corporate governance is strong" countered BMA Capital head of equities, Hammad Aslam, adding that "in Pakistan, investors would rather invest in the company that holds the reigns".
Whether investors at the local bourses are risk-takers or follow the doctrine of "follow the seths", is a separate and long-drawn debate.
What matters right now, is the performance of the new plant. Analysts are already tweaking their projections for the company and if the EnVen is able to bolster the bottom line for Engro in its first quarter; the summer may finally arrive in the companys chilled stock prices.