Engro Corporation: contrasting tales

Such is the diversity in Engro Corporations business lines that you would do rather good to tell if two different profit and loss statements are from the same period under the same holding company. The giant conglomerate announced its rather disappointing yet expected 9MCY12 financial results yesterday, reporting a net loss, down from the highs of massive profit in the same period last year.
The fertilizer business continues to be Engro Corporations flagship business, but its contribution to the bottom line has increasingly become rather subdued. Engro Fertilizers (EFERT) revenue dipped by 13 percent year-on-year mainly on account of dull buying activity in the industry as cheap imported urea flooded the market.
EFERTs new urea plant Enven, continued to be on the receiving end of massive feedstock gas curtailment, resulting in thinner gross margins at 31 percent for the period, down from 55 percent in the corresponding period last year.
It has been a while that Enven has been operating well below its optimal efficiency and the bottom line took the eventual hit, as the highly leveraged balance sheet meant massive financial charges. Engro had chalked out a rather smooth revenue stream, which is not the case, therefore, not enough operating avenue dented the bottom line massively, as financial charges mounted to more than Rs8 billion.
Engros trading arm, Eximp is also believed to have remained under pressure, as rice exports margins were under pressure and DAP imports were not significant enough to churn out profits.
It was left to the more vibrant foods and power business units to keep the sinking ship afloat. Engro Foods put another impressive show by quadrupling the net profit, on account of a healthy top line growth and improved gross margins. Engro PowerGen, too, continued to support the otherwise ailing P&L account, and is expected to have contributed significantly to arrest the losses, as the power plant is believed to be amongst the most efficient in the industry.
Going forward, urea sales may pick up in the dying months of CY12, but the same cannot be said of the gas supply. The fertilizer industry has long been demanding a dedicated gas field for urea manufacturing, but there appear to be one stumbling block too many in the way. From what it appears, the food and power business will have to be the saviour until Enven gets the gas.

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                                  Engro Corp       Engro Fertilizer      Engro Foods

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(Rs mn)                        9MCY12   Y/Y chg    9MCY12   Y/Y chg    9MCY12   Y/Y chg

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Sales                          82,937        5%    19,311      -13%    29,395       38%

Cost of sales                  64,270       14%    13,327       33%    22,098       31%

Gross profit                   18,667      -17%     5,984      -51%     7,297       61%

Gross margin                       23%     -21%       31%                  25%

Selling & distribution exp      8,428       16%     1,597        0%     3,563       33%

Other income                    1,147       12%       213      -70%       243      228%

Finance cost                   11,148       57%     8,142       63%       677      -15%

PAT                              (105)             (2,978)              1,619      297%

EPS (Rs)                        (0.87)              (2.78)               2.12

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Source(s): Company accounts, KSE notice

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