Engro Fertilizer announced its 2QCY13 results on 24thJuly’13. § Engro Fertilizer posted quarterly EPS of 0.68/share (+13.3% QoQ) translating into 1HCY13 EPS of 1.25/share turning the bottom-line into green after posting a loss of 1.53/share in 1HCY12. For Engro Corp, this translates into EPS of PKR2.79/sh for 1H or 60% of our current base-case estimate.§ Engro Fertilizer posted a hefty increase in its sales component primarily on the back of increased production and improved offtake in Kharif season, especially due to pre-buying in anticipation of urea price increase. With respect to quarterly figures the increase in revenues is 11.2, while a massive increase of 60% was posted in terms of half-yearly numbers YoY. Total urea sales stood at ~600k in 1HCY13 while total sales in 1HCY12 were 400k posting an increase of 50% YoY. The major jump is also primarily credited to lower base year effect. Engro Fertilizer has also improved its margins YoY with respect to half-yearly observation. The company increased its gross profit margins to ~41% in 1HCY13 as compared to ~35% in 1HCY12 (+17%) resulting from diversion of production from base plant to more efficient Enven plant. Although in terms of QoQ number the GP margin has decreased slightly from 43.4%, however net profit margin remain upbeat increasing from 6.6% to 7.2% QoQ highlighting operational efficiency and decrease in effective tax rate of 26% from 35% QoQ.§ Total urea production for 1HCY13 stood at ~650k which is an increase of ~25% YoY (520k in 1HCY12). From quarterly perspective production has increased from 295k in 1QCY13 to 351k in 2QCY13 translating into a significant increase of 19% QoQ.§ Companies financial charges have declined 26% YoY in the 2QCY13 primarily on the back of declining interest rates. Although we flag the risk of higher financial charges going forward with the IMF loan in the pipeline, we anticipate reversal in the monetary policy later in August. Outlook: § We foresee a stronger 2HCY13 for Engro Fertilizer primarily on the back of higher production (especially after the allocation of 60mmcfd from Mari network). Both the plants are expected to operate at 80-85% capacity utilization translating Into annual production of ~1600k. Increased production will translate into (much needed) increased sales. Margins may however come under pressure due to likely increase in gas price tariff and diminished spread between international & domestic urea prices threatening industry pricing power.
Posted on: Thu, 25 Jul 2013 08:26:16 +0000
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