Pushed in the corner earlier, Engro Corporation has emerged strong. The conglomerate has turned itself around with a commendable 1QCY13 performance, thanks mainly to its flagship fertilizer business.
Revival in fertilizer fortune was single-handedly responsible for the firm’s healthy topline growth. Engro’s urea sales quadrupled year-on-year during the period. The fertilizer revenue as a result tripled, despite lower product price.
The fertilizer gross margin improved considerably to 43 percent from 29 percent in the year ago period, as Engro opted to divert feedstock gas to its new Enven plant, which is more efficient and enjoys gas at a concessional rate. Reduced price differential with imported urea also played its role in augmenting urea off-take.
The firm’s finance cost continues to be on the higher side, but it is very close to a loan restructuring deal with local lenders, after which it plans to negotiate with the foreign consortium as well.
Engro is banking on implementation of the ECC-approved gas supply plan, which is expected to yield it 78 mmcfd gas by mid-2014. The materialisation of the plan will depend on the gas allocation policy adopted by the upcoming government.
Along with its peers Engro has signed three gas supply agreements with gas distribution companies, for which it plans to incur a capital expenditure of $48 million. If the plans are implemented, Engro could fetch much higher returns from its fertiliser business.
Among other businesses, foods and power continue to provide strength to the corporation’s bottom line. The Eximp and rice businesses have not tasted the kind of success, Engro’s other businesses have. Given the sheer size and diversified nature of its businesses, Engro Corp can live with a few arms not performing that well.
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ENGRO CORPORATION
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Rs (mn) 1QCY13 1QCY12 chg
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Sales 31,301 22,943 36%
Cost of sales 22,096 17,943 23%
Gross profit 9,205 5,000 84%
Gross margin 29.4% 21.8%
Selling & distribution cost 2,377 1,722 38%
Other income 275 567 -51%
Finance cost 3,749 3,861 -3%
PAT 2,014 (383)
EPS (Rs) 3.49 -1.27
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Source: KSE notice