Engro Corporation threw another surprise on Friday with its half yearly financial results staying well below market expectations. The earnings were jolted by Engro Fertilizers Limiteds sudden jump in financial charges that eroded the bottom line significantly.
Fertiliser business still continues to be the core of Engro Corporations diversified portfolio as it contributed two-thirds to the bottom line. The market had high expectations from the company given the fact that its peer fertiliser companies have posted record earnings in this season. Engro Fertilizers sold 16 percent more urea during the period against the same period last year, at a 30 percent higher price resulting in a 28 percent top line growth.
The fertiliser gross margins stayed on the higher side as the cost increase was more than offset by the product price increase.
What came as a surprise was an abnormal increase in financial charges which the market did not factor in. The company decided to expense interest capitalisation from the beginning of 2QCY11, despite the fact that the Commercial Operation Date was June 24, 2011, in accordance with International Accounting Standards.
Other than the disappointment on fertiliser front, most of the other businesses continued their good run, contributing heavily to the top line. The now-listed Engro Foods recorded a turnover of over Rs14 billion during the period, registering a whopping 44 percent year-on-year growth. The foods business turned green, registering profits of Rs213 million versus a loss of Rs180 million in the corresponding period in CY10.
The corporations trading arm, Engro Eximp, however, did not have much business to do as the phosphate fertiliser business remained dull for most part and inventory gains from last year were nowhere to be seen, which resulted in Eximp earning Rs314 million - just one-third of what it made in the same period last year.
The Corporations smart energy venture at Qadirpur reaped good results as it operated at high efficiency level. Engro Energys profits jumped 90 percent year-on-year and the future looks bright as the power demand-supply situation remains largely tilted in the favour of producers.
The Polymer business though continues to remain the Achilles heel in an otherwise clean sheet for the corporation. Although its losses reduced to Rs195 million from Rs449 million a year ago, the petrochemical business is still struggling to find a way to make profits.
The stock price has taken a massive hit in the past few weeks, and the unimpressive half yearly performance might add more pressure to the share price at the bourses. On the other hand, the optimists might see it as an opportunity to capitalise on the cheap multiples on offer.
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ENGRO CORPORATION
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Rs (mn) 1HCY11 1HCY10 chg 2QC11 2QC10 chg
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Sales 46,084 33,725 37% 24,236 16,865 44%
Cost of sales 33,044 24,441 35% 17,321 12,264 41%
Gross profit 13,041 9,283 40% 6,916 4,601 50%
Gross margin 28% 28% 29% 27%
Other income 599 616 -3% 255 481 -47%
Finance cost 4,408 2,445 80% 2,957 1,541 92%
PAT 3,316 3,197 4% 1,274 1,392 -8%
EPS (Rs) 8.43 8.13 3.24 3.54
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Source: KSE notice.
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