Engro Corporations core business is doing fine, at least so suggests the firms half year financial results announced yesterday, where the anomaly of non-core business being the major contributor has been removed.
Engro earned Rs10.3/share for the period, much in line with general consensus - yet not everyone seems to like the result as the firms share price dipped a bit yesterday.
What is astonishing about Engros results - especially that of its fertilizer segment - are the gross profit margins at 49 percent. It is weird that the company has achieved its record high gross margins at a time when fertilizer manufacturers complain of the pain caused by feedstock gas curtailment.
Even more surprising is the fact that Engro actually managed to produce 15 percent more urea than it did during the first half last year.
That is a good achievement in such troublesome times, when everybody thought that production must be on the downside. Either the company has attained wonderful efficiency levels or the Rs100/bag rise in urea prices to make up for the feared production losses is highly unjustified - or both.
Inventory gains on DAP fertilizer could probably be another factor along with urea price hike that has helped achieve Engro such strong gross margins.
Save for the fertilizer business, however, the companys performance seems nervy. Engro Polymers continuing loss-making spree dealt a significant blow to the firms bottom line.
The firms trading arm, Engro Eximp, remained relatively calm during the quarter compared to its hefty DAP trading during the previous quarter. Though the break-up is not known yet, a look at the numbers tells that Engro Eximp may not have crossed the Rs200 million mark for the quarter versus the massive Rs897 million earned last quarter.
Engro Foods on the other hand does not seem to be in any hurry to start making profits - despite being the largest revenue generator for the company. It has been one long wait for Engro Foods as far as breaking-even, despite strong growth in market share in certain areas of the country.
The fertilizer-led earnings growth seems good for the company, but the investors need not be thinking of half-yearly profits doubling in the latter half on annualized basis.
Much will depend on how Eximp performs - and there is little to suggest that Eximp will be importing much DAP in the near future given the high inventory levels and low demand. A turnaround in Polymers fortune is also vital for the companys bottom line to remain strong in the remaining half.
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ENGRO P&L
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Rs (mn) 1HCY10 1HCY09 % chg 2QC10 1QCY10 % chg
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Sales 33,725 22,896 47% 16,865 16,859 0%
Cost of sales 24,441 17,857 37% 12,264 12,177 1%
Gross profit 9,283 5,039 84% 4,601 4,682 -2%
Gross margin 28% 22% 25% 27% 28% -2%
Other income 616 226 172% 481 135 257%
Finance cost 2,445 1,263 94% 1,541 904 70%
PAT 3,197 1,022 213% 1,392 1,805 -23%
EPS (Rs) 10.37 3.63 4.60 6.71
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Source: KSE notice