Fertiliser drives Engro profits

Engro got more gas last year; it made more profits. It got less gas in CY12; it made less profits. Regardless of how big a conglomerate Engro has turned out to be – the fertiliser business forms the core of its fortunes. Higher urea production resulted in much improved margins and a massive 66 percent year-on-year increase in fertiliser revenues.
The fertiliser turnaround more than made up for a rather lacklustre year for Engro Foods, which saw profits down a huge ten times from yesteryears. Not long ago, Engro Foods had surpassed the fertiliser arm in terms of revenue contribution to Engro Corporation – but the trend has reversed, strengthening the notion that fertiliser stays the core of Engro.
Fertiliser business contributed nearly one-third to CY13 revenues, up from one-fourth last year. The gross margins improved as the new plant, which happened to be more efficient, received gas for a good period – resulting in over 1000 bps improvement in gross profit margins. The finance cost too did not eat up as much as it had in the recent past – protecting the bottomline.
In other businesses, the turnaround at Engro Polymer also played its bit in strengthening the overall profitability. The bottomline contribution from polymer business is believed to be significantly greater than that from foods. Recall that the polymer arm had been struggling for quite some time in the past, but debottlenecking activities seem to have done the trick.
Eximp and the power generation business too are believed to be in good health – proving to be the icing on the cake for Engro Corp.
A lot will depend on when and if and at what rates, if at all, Engro starts receiving feedstock gas at concessionary rates. The mind boggling surge in Engro Fertilizers share price suggests that market is pretty confident of Engro’s chances of being on the lucky side this time around.

=============================================================

ENGRO CORPORATION

=============================================================

Rs (mn)                          CY12        CY13         chg

=============================================================

Sales                          125151      155360         24%

Cost of sales                   96631      114763         19%

Gross profit                    28520       40597         42%

Gross margin                       23%         26%

Admin expense                   11636       13784         18%

Other income                     2028        2686         32%

Finance cost                    17451       16845         -3%

PAT                              1333        8183        514%

EPS (Rs)                         2.61       16.01

Source: KSE notice

=============================================================